Category Archives: Commercial Banking

Thinking of a FinTech Solution for Your Mortgage Business ?

How Mortgage Lenders Should Evaluate Fintech Solutions

BLOG VIEW: As the mortgage industry continues to face the challenge of increasing origination costs – not to mention margin compression and rising interest rates – it’s becoming imperative for lenders to evaluate their current cost to produce, from both a technology and personnel standpoint.

Now is the time when CEOs and executives should be examining their technology production costs in comparison to their labor expenses with the aim of discovering ways to originate more with fewer employees and increased efficiencies.

Technology cannot solve for all, and lenders still need human expertise. So has the growing fintech stack really increased efficiencies and reduced origination costs? Or are lenders adding to their fintech stack without any real return on investment?

The following checklist can help lenders determine if the solution being considered is worth the price.

Does it align with your business strategy?

Established organizations always have dependable, tested and proven procedures in place and do not often embrace new technologies quickly. However, the technology driven world we live in today demands innovation. Therefore, if a lender’s business strategy includes scalability and sustainability, it is critical that it evaluate its current fintech solution to ensure it aligns with strategic initiatives.

Does it utilize data for sales strategy optimization?

If a company doesn’t have adequate computational resources, it won’t be able to monitor all the critical customer-facing activities like organizing, managing and strategically using large datasets to enhance sales procedures.

Does it have a user-friendly interface?

You’ve likely heard the expression that “time is money.” A fintech solution that is difficult to navigate or does not have features that reduce the time it takes to fulfill a loan will not achieve the end goal of reducing the cost to originate.

Does it offer built in compliance monitoring?

It’s challenging to originate loans in this heavily regulated industry. The technology under consideration should track compliance to the various rules such as initial disclosure, issuance of CD, tolerance cures, etc. It is imperative that a lender’s fintech solution help manage regulatory standards now, to avoid undesired outcomes later.

Does it support a fully digital origination process?

A fully digitized loan origination process allows mortgage bankers to immediately issue agency approval while talking to the borrower, which saves time and allows an increase in productivity on the number of loans that can be processed per day.

Does it offer a guided workflow?

There are several steps that take a loan from verification to approval faster. These steps can take over 30 days because of the validation necessary to complete the process accurately. When a fintech solution has a guided workflow, it allows automatic approval where possible and has built in tutorials to help both seasoned and new mortgage bankers streamline their procedures for faster completion.

Does it incorporate sales strategies in CRM?

Sales activities drive revenue and therefore the habits of loan officers are critical to meet and exceed revenue targets. When a fintech solution incorporates sales strategies in a lender’s CRM system, all customer data is organized to inform the highest value sales activities for the day based on previous actions and the stage of the customer journey.

Does it offer a single data warehouse?

When a fintech solution has one database for originations, processing, funding, marketing and sales activities, the lender will have a streamlined process that reduces errors and makes historical reporting and future projections easier to prepare.

The global fintech adoption rate rose to 64% in 2020. This reveals how important fintech technologies have become to the mortgage industry. We can expect that rate to be closer to 100% over the next couple years as the industry pivots to more online solutions.

Whether your company is part of the 64% that already have a solution or the 36% that will, it is critical to accurately assess every solution in order to get the most value for your investment. 

Lenders that evaluate fintech solutions using this checklist will align their business strategy with their sales strategy and create a seamless workflow that promotes employee engagement, agency and regulatory compliance, faster loan processing, and satisfied customers.


Do You Know The Latest HMDA Requirements?

HMDA purpose and coverage

The federal Home Mortgage Disclosure Act (HMDA) was passed in 1975 to address concerns that lenders were contributing to the decline of some urban areas by failing to offer adequate home financing to qualified applicants on reasonable terms and conditions, in violation of their bank charters. [12 United States Code §§2801 et seq.]

From 1988 to 1992, substantial changes were made to the HMDA under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and the Federal Deposit Insurance Corporation Involvement Act (FDICIA). FIRREA and FDICIA required independent mortgage lenders who met certain loan volume criteria to collect HMDA data. Thus, federal and state banks, credit unions, savings associations and independent mortgage lenders can be required by the HMDA to compile home loan application and closed loan data.

HMDA rules are promulgated under Regulation C (Reg C). [12 Code of Federal Regulations §§1003 et seq.]

In 2015, the Consumer Financial Protection Bureau (CFPB) made changes to the HMDA and Reg C according to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Clarifying changes were made in 2017. Generally, these changes modified the types of institutions and transactions subject to HMDA and expanded the scope of the data required to be collected.

Modifications to reportable data

HMDA data added to reporting requirements in 2018 includes:

a) the property address;

b) the borrower or applicant’s age;

c) the borrower or applicant’s credit score;

d) total points and fees charged at the time of origination;

e) the total borrower-paid origination charges;

f) the total discount points paid to the lender;

g) the amount of lender credits;

h) the interest rate;

i) the term (in months) of any prepayment period;

j) the debt-to-income ratio (DTI);

k) the combined loan-to-value ratio (LTV);

l) the loan term (in months);

m) the introductory interest rate period (in months);

n) the presence of terms resulting in potential negative amortization;

o) the property value;

p) whether the property is manufactured housing;

q) the ownership of land when the property is manufactured housing;

r) the total number of units related to the property;

s) the total number of income-restricted units related to the property;

t) the lending channel, e.g., retail or broker;

u) the originator’s NMLS ID;

v) the automated underwriting system (AUS) used to evaluation the application, and the result generated by the AUS;

w) whether the loan is a reverse mortgage;

x) whether the loan is an open-end loan; and

y) whether the transaction is a business-purpose loan. [12 CFR §1003.4(a)]

Why more criteria? For example, the current HMDA data can tell regulators whether a loan exceeds high-cost loan thresholds, and by how much. Regulators can further break the data down to show how often APRs exceed the high-cost loan thresholds for different ethnicities and races, and pinpoint a potentially discriminatory pattern.


The Regulatory Challenges With Digital Closings

In a recent report aimed at identifying improvements to the regulatory landscape that will better support financial technology and foster innovation, the U.S. Department of the Treasury offered three key recommendations to improve the electronic closing and recording process.

In drafting the report, Treasury consulted with a wide range of stakeholders—including the American Land Title Association (ALTA)—focused on consumer financial data aggregation, lending, payments, credit servicing, financial technology and innovation. The Treasury said its recommendations should enable U.S. firms to more rapidly adopt competitive technologies, safeguard consumer data and operate with greater regulatory efficiency.

The different ways to close real estate purchase or refinance

The benefits of digital real estate closings

“We appreciate Treasury’s thoughtful approach, understanding the hurdles that exist in the market and for providing recommendations to improve electronic recordings and closings,” said Cynthia Blair NTP, past president of ALTA and founding partner of the law firm Blair Cato Pickren Casterline LLC. “As digital closings continue to evolve, ALTA and its members will continue to help lead the effort to improve the closing experience for consumers. Finding the right balance between convenience, security and risk are all issues we must consider as we build a road to smarter closings.”

To improve the electronic closing and recording process, Treasury offered these recommendations:

1. States that have not authorized electronic and remote online notarization (RON) should pursue legislation to explicitly permit the application of this technology and the interstate recognition of remotely notarized documents. Treasury recommends that states align laws and regulations to further standardize notarization practices.

2. Congress should consider legislation to provide a minimum uniform national standard for electronic and remote online notarizations. The Treasury believes such legislation would facilitate, but not require, this component of a fully digital mortgage process and provide more legal certainty across the country. Federal legislation is not mutually exclusive with continued efforts at the state level to enact a framework governing the use of electronic methods for financial documents requiring notarization, according to the Treasury report.

3. Recording jurisdictions that don’t recognize and accept electronic records should implement the necessary technology updates to process and record these documents and pursue digitization of existing property records.

Treasury said that while the Uniform Electronic Transactions Act (UETA) and Electronic Signatures in Global and National Commerce Act (ESIGN) e-commerce laws establish the validity of electronic signatures on consumer credit transactions, “additional legal clarity is needed to ensure compliance with state notary laws for use of electronic notarizations, specifically the sanctioning of digital notarizations in lieu of a physical signature and notarization.”

To date, 39 states have enacted laws establishing the legality of such e-notarization. In 2010, the National Conference of Commissioners on Uniform State Laws (also known as the Uniform Law Commission, or ULC) promulgated a revised model statutory framework for notarial acts, updating its original 1982 model act, aimed at facilitating interstate recognition of various types of notarizations.

Additionally, during its annual meeting in July, the Uniform Law Commission approved updates to its model state notarization law—the Revised Uniform Law on Notarial Acts (RULONA)—to allow remote online notarization. ALTA and the Mortgage Bankers Association (MBA) worked closely with the ULC drafting committee to ensure consistency between the RULONA amendments and the model RON bill.

Remote online notarization (RON) is one type of technology innovation that has become more prevalent in the industry. RON allows notaries to conduct notariziations using audio-visual technology over the internet instead of being physically present. Currently there are 22 states that have passed remote notary laws. Out of those states, 10 have laws that are in effect and six have fully implemented their remote notarization procedures. Arizona’s RON legislation goes into effect June 30, 2020.

“These electronic notarization statutes, enabling digital notary signature for in-person notarizations, provide insufficient legal certainty for the use of remote notarization conducted electronically via webcam, with the latter permitting both signatory and notary to be in different locations,” Treasury concluded.

The report mentioned the model legislation ALTA developed in 2017 with the Mortgage Bankers Association to provide a framework for states to use in adopting remote online notarization for real-estate transactions. ALTA does not specifically endorse online notarization, but wants to ensure any legislation that is passed is safe for consumers, that transactions are insurable and technology neutral. ALTA believes that without a model bill to help guide legislative discussions, different state standards are likely to result. That outcome is the last thing consumers and the industry need, as it will lead to inefficiencies, additional costs and a poor customer experience.

As more transactions are handled electronically, it’s important to ensure that documents are validly executed and in a recordable format. To ensure that the title insurance and settlement industry can protect property rights, a reliable land records system is needed that is free of any contamination of unlawfully executed and/or recorded documents.

In its report, Treasury said, “Despite state-level progress toward wider recognition of electronic notarization, the absence of a broad statutory acceptance across the country and uneven standards for remote and electronic notarization implementation has created confusion for market participants, slowing adoption of digital advances in mortgage technology by limiting the ability for lenders to complete a digital mortgage with an e-closing.”

The Treasury report noted that non-uniform state rules create a cost barrier for electronic notarization system vendors developing their platforms as well as uncertainty for investors considering purchasing digital mortgages.

“County-level acceptance of digital security instruments is a key determinant of whether a lender will pursue an electronic closing, as lack of acceptance of these documents renders such critical e-mortgage components, such as electronic notarization, moot,” according to the report.

In 2004, the Uniform Law Commission promulgated the Uniform Real Property Electronic Recording Act (URPERA), representing a model statutory framework to provide county clerks and recorders the authority to accept electronic recording of real property instruments.

To date, 36 states and U.S. territories have enacted URPERA. Arizona was among the first states to pass this legislation in 2005. Implementation has picked up pace over the past few years. Through 2019, more than 2,000 of the 3,600 recording jurisdictions in the U.S. offer electronic recording.

Risks and Compliance in Commercial Banking Today

In today’s news cycle, it seems barely a week goes by before another headline flitters across a social news feed about a data breach at some major U.S. or foreign company. Hackers and scams seem to abound across the marketplace, regardless of industry or any defining factor.

Cybersecurity itself has become an increasingly important issue for bank boards—84 percent of directors and executives responding to Bank Director’s 2018 Risk Survey earlier this year cited cybersecurity as one of the top categories of risk they worry about most. Facing the industry’s cyber threats has become a principal focus for many audit and risk committees as well, along with their oversight of other external and internal threats.

Technology’s influence in banking has forced institutions to come to terms with both the inevitability of not just integrating technology somewhere within the bank’s operation, but the risk that’s involved with that enhancement. Add to that the percolating influence of blockchain and cryptocurrency and the impending implementation of the new current expected credit loss (CECL) standards issued by the Financial Accounting Standards Board, and bank boards—especially the audit and risk committees within those boards—have been thrust into uncharted waters in many ways and have few points of reference on which to guide them, other than what might be general provisions in their charters.

And lest we forget, audit and risk committees still face conventional yet equally important duties related to identifying and hiring the independent auditor, oversight of the internal and external audit function, and managing interest rate risk and credit risk for the bank—all still top priorities for individual banks and their regulators.

The industry is also in a welcome period of transition as the economy has regained its health, which has influenced interest rates and driven competition to new heights, and the current administration is bent on rolling back regulations imposed in the wake of the 2008 crisis that have affected institutions of all sizes.

These topics and more will be addressed at Bank Director’s 2018 Audit & Risk Committees Conference, held June 12-13 at Swissôtel in Chicago, covering everything from politics and the economy to stress testing, CECL and fintech partnerships.

Among the headlining moments of the conference will be a moderated discussion with Thomas Curry, a former director of the Federal Deposit Insurance Corp. who later became the 30th Comptroller of the Currency, serving a 5-year term under President Barack Obama and, briefly, President Donald Trump.

Curry was at the helm of the OCC during a key time in the post-crisis recovery. Among the topics to come up in the discussion with Bank Director Editor in Chief Jack Milligan are Curry’s views on the risks facing the banking system and his advice for CEOs, boards and committees, and his thoughts about more contemporary influences, including the recently passed regulatory reform package and the shifting regulatory landscape.


Commercial Banks and Their Share of the Mortgage Industry

The five largest U.S. banks originated residential mortgages worth less than $87 billion in Q1 2018. This marks a sharp reduction from the figure of $110 billion in the previous quarter, and is also well below the $96 billion in mortgages originated a year ago. In fact, this was one of the worst quarters on record for these banks in the last twenty years. The only instance where these banks fared worse was in Q1 2014, when the end of the mortgage refinancing wave resulted in total originations dropping to $75 billion.

The sharp decline is primarily because of the reduction in overall activity levels across the mortgage industry from an increase in interest rates – something that can be attributed to the Fed’s ongoing rate hike process. While total mortgage originations for the industry also fell to $346 billion from $361 billion a year ago, a sharper decline in origination activity for the largest banks led their market share lower to 25% from 27% in Q1 2017.

We capture the impact of changes in mortgage banking performance on the share price of the banks with the largest mortgage operations in the U.S. – Wells FargoU.S. BancorpJPMorgan Chase and Bank of America – in a series of interactive dashboards. Total U.S. Originations includes fresh mortgages as well as mortgage refinances as compiled by the Mortgage Bankers Association

The mortgage industry in the U.S. witnessed a sharp reduction in origination volumes since Q4 2016, as a series of interest rate hikes by the Fed weighed on mortgage refinancing activity even as an increase in mortgage rates hurt the number of fresh mortgage applications. This led to total mortgage originations falling from $561 billion in Q3 2016 to just $346 billion in Q1 2018. There was a notable uptick in mortgage activity over Q2-Q3 2017, though, as a small reduction in long-term mortgage rates helped boost demand over this period.

Wells Fargo Maintains Its Lead

Wells Fargo has remained the largest mortgage originator in the country since before the economic downturn. While the bank was always focused on the mortgage business, it tightened its grip in the industry after the recession thanks to its acquisition of Wachovia – originating one in every four mortgages in the country in early 2010. Although weak conditions in the mortgage space dragged down Wells Fargo’s market share to a low of 11% in Q4 2015, the bank’s market share has largely remained around 12.5% over recent quarters.

That said, the combined market share of these five banks has fallen drastically from over 50% in 2011 to around 25% now. This was primarily due to a sizable reduction in mortgage operations by Bank of America and Citigroup to curtail losses they incurred in the wake of the recession. In fact, Bank of America’s mortgage banking division has shrunk to an insignificant part of its business model – leading to a decision by its management to no longer report mortgage banking revenues separately starting in Q1 2018.


Regulation Compliance Bruden Now Quantified

How much does your bank spend on regulatory compliance?

A recent Fed district bank study found that community bank compliance costs averaged 7.2% of non-interest expense. While significant by itself, that average hides a trend with significant implications—but let’s not get ahead of the story.

When S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act was signed into law, the industry breathed a big sigh of relief. But getting rid of some of the Dodd-Frank Act rules, or easing them, won’t solve the totality of the regulatory burden banks face—not by a long shot. There was plenty to do before Dodd-Frank came about, and most previous relief laws merely nibbled around the edges of compliance duties.

Compliance isn’t fading away

In fact, it has been pointed out by some in the compliance fraternity that, in the wake of S. 2155, banks initially will face additional costs in unwinding systems and procedures built at a significant cost to handle the rules that have been eliminated or amended.

Indeed, in an analysis of S. 2155 on by Zach Fox of S&P Global Market Intelligence, “Still engulfed by regs,” the writer states:

“For smaller banks, the relief appears more modest. Some of the law’s provisions meant to ease regulatory burden will have little impact for a simple reason: Small banks were already exempt. Provisions, such as qualified mortgage status for loans held in portfolio, higher leverage at bank holding companies, a lengthier exam cycle, and a shorter call report, were already available to banks with less than $1 billion of assets.”

The hopes for further relief through Senate consideration of other financial legislation sent over by the House remain just that—hopes. Political promises from Senate leadership to House Financial Services Commission Chairman Jeb Hensarling have been made in a midterm election year that may exert unusual gravitational pull on legislation.

Burden’s costs and implications

And that makes the findings of a Federal Reserve Bank of St. Louis study about community banks’ regulatory costs especially interesting.

For those who predict that compliance costs will continue to encourage consolidation at the small end of the industry spectrum, the study provides more evidence.

Indeed, the study reports that 85% of bankers in the most-recent sampling in its database indicated that regulatory costs were important in considering acquisition offers.

The project makes it clear that regulatory burden hits smaller community banks harder than larger community banks, and that the impetus to merge for compliance efficiency will not go away, even though the recent regulatory reforms may help some institutions.

Major findings

The Fed study, entitled Compliance Costs, Economies Of Scale, And Compliance Performance, was published in April. The project was based on survey data compiled from among nearly 1,100 community banks by the Conference of State Bank Supervisors in 2015, 2016, and 2017. (All institutions in the sample were under $10 billion in assets.) Interestingly, the researchers also referenced multiple studies of banking compliance costs that have been performed in recent years by agencies, academics, and associations to give a full picture around their own findings and arguments.

The survey looked at regulatory costs in multiple ways and at multiple levels. Among the findings:

• Economies of scale exist in compliance.

Many forms of compliance have incremental costs—suspicious activity reporting, mortgage transactions, etc., cost more with increasing volume—but the ongoing fundamental systems costs and the costs of keeping current apply to all institutions.

“Banks with assets of less than $100 million reported compliance costs that averaged almost 10% of non-interest expense,” the study reports, “while the largest banks in the study reported compliance costs that averaged 5%. In other words, the compliance cost burden for the smallest community banks is double that of the largest community banks.” [Emphasis added.] The largest banks referred to were those with between $1 billion and $10 billion in assets.

• Bank Secrecy Act compliance costs lead the way among expenses tied to specific regulations.

In the 2017 survey results, based on 2016 numbers, BSA expenses dwarfed all other compliance costs, with the exception of those related to RESPA, TILA, and Regulation Z. This is interesting because Comptroller of the Currency Joseph Otting, a former banker, identified BSA costs early on as a priority. While banking agencies can’t directly change the rules, Otting has spearheaded efforts to discuss these issues with the agency that does, the Financial Crimes Enforcement Network, or FinCEN.

As the exhibit below indicates, mortgage-related rules would supplant BSA as the leading categories if the RESPA, TILA, and Regulation Z, Qualified Mortgage, and Ability to Repay rule bar were combined into one, totaling almost 36%.


Source: Compliance Costs, Economies Of Scale, And Compliance Performance

• Personnel expenses account for the majority of community bank compliance costs.

The study found that this was followed, in order, by data processing, accounting, consulting, and legal expenses. The report states that personnel costs—coming to 5.1% of average non-interest expense—represent almost seven times more than the other four categories combined.


Source: Compliance Costs, Economies Of Scale, And Compliance Performance

“Compliance expenses for personnel appear to be more subjective than expenses in the other categories,” the report says. “For example, it may be difficult to estimate just how much time a loan officer spends filling out compliance forms versus drumming up new business. Respondents may account differently for the time and attention devoted to compliance by chief executive officers or boards of directors.”

• Compliance spending and compliance ratings bear little relationship to each other.

For this analysis, the researchers looked at both compliance ratings and the M—for management—component of the CAMELS ratings, which includes consideration of the management and board oversight of the compliance function.


Source: Compliance Costs, Economies Of Scale, And Compliance Performance

The analysis found that “within a given size category, compliance expenses as percentages of non-interest expense do not appear to vary systematically for banks with different performance ratings. For banks with assets of less than $100 million, for example, relative compliance expenses at the highest-rated banks were lower than for other banks, while for banks with assets between $500 million and $1 billion, relative compliance expenses were higher for the highest-rated banks than for other banks. This suggests that compliance performance is based on factors other than what is spent on it.”


Is Banking Deregulation Starting to Work ?

Ed Mills, a Washington policy analyst at Raymond James, answers some of the most frequent questions swirling around the deregulation discussion working its way through Congress, the changing face of the Fed and other hot-button issues within the banking industry.

Q: You see the policy stars aligning for financials – what do you mean?
The bank deregulatory process anticipated following the 2016 election is underway. The key personnel atop the federal banking regulators are being replaced, the Board of Governors at the Federal Reserve is undergoing a near total transformation, and Congress is set to make the most significant changes to the Dodd-Frank Wall Street Reform Act since its passage. This deregulatory push, combined with the recently enacted tax changes, will likely result in increased profitability, capital return, and M&A activity for many financial services companies.

Perhaps no regulator has been more impactful on the implementation of the post-crisis regulatory infrastructure than the Federal Reserve. As six of seven seats on the board of governors change hands, this represents a sea change for bank regulation.

We are also anticipating action on a bipartisan Senate legislation to increase the threshold that determines if an institution is systemically important – or a SIFI institution – on bank holding companies from $50 billion to $250 billion, among other reforms.

Q: Can you expand on why Congress is changing these rules?
Under existing law, banks are subject to escalating levels of regulation based upon their asset size. Key thresholds include banks at $1 billion, $10 billion, $50 billion and $250 billion in assets. These asset sizes may seem like really large numbers, but are only a fraction of the $1 trillion-plus held by top banks. There have been concerns in recent years that these thresholds are too low and have held back community and regional banks from lending to small businesses, and have slowed economic growth.

Responding to these concerns, a bipartisan group in the Senate is advocating a bill that would raise the threshold for when a bank is considered systemically important and subjected to increased regulations. The hope among the bill’s advocates is that community and regional banks would see a reduction in regulatory cost, greater flexibility on business activity, increased lending, and a boost to economic growth.

The bill recently cleared the Senate on a 67-31 vote, and is now waiting for the House to pass the bill and the two chambers to then strike a deal that sends it to the president’s desk.

Q: What changes do you expect on the regulatory side with leadership transitions?
In the coming year, we expect continued changes to the stress testing process for the largest banks (Comprehensive Capital Analysis and Review, known as CCAR), greater ability for banks to increase dividends, and changes to capital, leverage and liquidity rules.

We expect the Fed will shift away from regulation to normalization of the fed funds rate. This could represent a multi-pronged win for the banking industry: normalized interest rates, expanded regulatory relief, increased business activity and lower regulatory expenses.

Another key regulator we’re watching is the CFPB (Consumer Financial Protection Bureau), which under Director Richard Cordray pursued an aggressive regulatory agenda for banks. With White House Office of Management and Budget Director Mick Mulvaney assuming interim leadership, the bureau is re-evaluating its enforcement mechanisms. Additionally, Dodd-Frank requires review of all major rules within five years of their effective dates, providing an opportunity for the Trump-appointed director to make major revisions.

Q: We often hear concerns that the rollback of financial regulations put in place to prevent a repeat of one financial crisis will lead to the next. Are we sowing the seeds of the next collapse?
There is little doubt the lack of proper regulation and enforcement played a strong role in the financial crisis. The regulatory infrastructure put in place post-crisis has undoubtedly made the banking industry sounder. Fed Chairman Jerome Powell recently testified before Congress that the deregulatory bill being considered will not impact that soundness.

Q: In your view, what kind of political developments will have effects on markets?
We are keeping our eyes on the results of the increase in trade-related actions and the November midterms. The recent announcement on tariffs raises concerns of a trade war and presents a potentially significant headwind for the economy. The market may grow nervous over a potential changeover in the House and or Senate majorities, but it could also sow optimism on the ability to see a breakthrough on other legislative priorities.



HMDA Trends To Watch That Could Prevent Fines

There were one million fewer mortgages originated in 2017 compared to 2016, according to new Home Mortgage Disclosure Act data released by the Federal Financial Institution Examination Council and Consumer Financial Protection Bureau.

The annual HMDA data is traditionally released in September for the previous year. But this year, the FFIEC and CFPB released “snapshot-level” data on 2017 originations to make the information available to the public sooner, and will update the data as needed later in the year.

The 2017 HMDA data tracked information on 12.1 million home loan applications, which resulted in 7.3 million loan originations, 2.1 million in purchased loans, and a total of over 14.1 million actions, according to the FFIEC. The data also includes information on about 481,000 preapproval requests for purchase mortgages.

Notably, for 2017, the volume of reporting institutions dropped 13% to 5,852 institutions compared to the previous year. This was most likely driven by changes to Regulation C, which altered guidelines on which depository institutions were required to report.

Also prevalent in the data were insights on borrowers of different racial backgrounds. Both purchase and refinance loans made to black borrowers grew in 2017, while refinance mortgages for Asian borrowers fell 1.5 percentage points. However, minorities saw greater denial rates overall for conventional home purchase loans.

By product type, the share of Federal Housing Administration loans for home purchases plummeted, part of an overall decline in the government-mortgage share of purchase volume.

From falling originations to market share shifts for nonbanks and government loans, here’s a look at eight key findings from the new HMDA dataset.


Are Banking Regulations About to Ease ?

A Senate bill with bipartisan support would significantly ease the regulatory burden placed on banks by Dodd-Frank legislation passed during the Obama administration following the 2008 financial crisis, The Washington Post reports.

The bill, which is favored by Republicans but also has more than a dozen Democratic supporters, aims to provide relief to midsize and regional banks. The bill’s supporters say Dodd-Frank unfairly lumps smaller banks in with the largest financial institutions, making it difficult or impossible for them to survive.

What is Dodd-Frank?

The Dodd-Frank Wall Street Reform and Consumer Protection Act, named after former Sen. Christopher Dodd (D-Conn.) and Rep. Barney Frank (D-Mass.), serves two purposes: Regulate the financial industry to prevent major collapses like the one in 2008, and protect consumers from abusive lending practices.

The 2008 financial crisis occurred largely due to risky investments that started at the local level and got sold up the chain.

Local mortgage brokers offered subprime home loans to consumers at high-risk of default, and those loans were sold to larger firms and subsequently bundled in bonds and sold worldwide.

When large numbers of homeowners defaulted, the bonds, and other assets based on the bonds, collapsed.

Dodd-Frank made it more difficult for banks to use these unstable financial products by increasing supervision and making mortgage lending rules more strict, created the Consumer Financial Protection Bureau to protect borrowers, and created a system for the orderly dissolution of a large failed financial company.

Why would that be rolled back?

Some feel that Dodd-Frank was an overreaction to the financial crisis, and that the resulting regulations have crippled small- and mid-size financial institutions, punishing them for the mistakes of Wall Street.

Sen. Jon Tester (D-Mont.) said the regulations have caused banks in his state to go out of business, and said this bill helps out midsize and regional banks without letting Wall Street off the hook.

“The Main Street banks, community banks and credit unions didn’t create the crisis in 2008, and they were getting heavily regulated,” Tester said according to The Washington Post. “There’s not one thing in this bill that gives Wall Street a break.”

What would the bill do?

The bill would exempt financial companies with assets between $50 billion and $250 billion from the Federal Reserve scrutiny mandated by Dodd-Frank. Only banks with more than $250 billion in assets, of which there are fewer than 10, would receive the highest level of regulatory scrutiny.

What’s the argument against this bill?

Critics say that Dodd-Frank has been successful in preventing financial crises, and that even partial repeals of the law carelessly increase the risk that another collapse could take place.

“On the 10th anniversary of an enormous financial crash, Congress should not be passing laws to roll back regulations on Wall Street banks,” Sen. Elizabeth Warren (D. Mass.) said. “The bill permits about 25 of the 40 largest banks in America to escape heightened scrutiny and to be regulated as if they were tiny little community banks that could have no impact on the economy.”

What are the chances of the bill passing?

The bill has a good chance of getting the necessary 60 votes in the Senate because of the significant Democratic support.

The House has passed a bill already that would roll back Dodd-Frank even further. But, Senate Democrats have expressed resistance to significant changes to the Senate bill, which could make reconciliation with the House bill more difficult.

Say Goodbye to Bank Branches

As Yogi Berra famously pointed out, “It’s tough to make predictions, especially about the future.” Nevertheless, based on my interactions with clients over the last 12 months, here are some best guesses about what executives in the retail and commercial banking industry will be thinking and talking about in 2018. I will undoubtedly be proven wrong about what will matter, and I hope you find plenty to disagree with. So, presented in no particular order, here are 10 trends to keep an eye on in 2018.

Open banking goes mainstream

The wave is starting in Europe, where new regulations, such as PSD2, are forcing European banks to open certain banking services to third parties. In other markets, like the U.S., a move toward open banking is coming from fragmentation of the traditional vertically-integrated bank value chain. Open banking allows customers to share access to their financial data with non-bank third parties, so that those companies can then create apps and services to give customers a better banking experience. This will be the year in which attitudes to open banking start to separate those who want to differentiate themselves by being good trading partners from those still hunkering down behind trade barriers seeking to harvest diminishing profits from old business models.

Put it in the cloud

Twenty-five years ago, banks were debating whether it was safe to execute electronic transactions over the nascent internet or if they should instead build their own proprietary networks. Twenty-five years from now, the current debate about the safety of using the public cloud for banking will seem similarly quaint. There is already plenty of evidence that the cloud can be as secure as any private data center, and current predictions are that by 2020, more computing power will be deployed in the cloud than in all private data centers. In 2018, the conversation around cloud will shift from “if” to “how and when.”

Fewer heart transplants, more bypasses

Traditional mainframe core banking applications are not well suited to the digital economy. The world of overnight batch processing and 4 p.m. transaction cutoffs sits uncomfortably with customers’ expectation of real-time banking. But ripping out and replacing decades-old technology can be an expensive and risky option, especially in light of the promise of blockchain as a medium-term replacement for traditional books and records. Instead, look for banks to “freeze and wrap” — using existing core systems as books of record, while moving customer engagement and analytics to the cloud.

Become truly digital or get out

Customers today expect to be able to sign up for new banking services online. With the advent of the Aadhar digital ID system in India, it can be easier to open a bank account in New Delhi than in New York. Smart, forward-looking banks are now incorporating advanced authentication into their digital apps, while the laggards still ask you to come into a branch to sign a piece of paper. The evidence in the U.S. is that smaller banks are losing market share to the big players because they are struggling to deliver an end-to-end digital customer experience. In 2018, a failure to provide true digital origination will start to move from a disappointment to an existential threat.

Man or machine?

One of the biggest threats banks will face in the next year is synthetic identity fraud. This kind of fraud differs from traditional identity theft in that the perpetrator creates a new identity rather than stealing an existing one. Online deposit and loan origination allows these fake people to open digital accounts that pass all of the usual security checks. It’s a phantom crime that is costing banks billions of dollars and countless hours as they chase down people who don’t even exist. In 2018, banks will need to get better at sorting the real customers from the fake, without undermining the benefits of a great digital customer experience.

Digital first will mean fewer bank branches

Just as travel agencies are quickly becoming a thing of the past, digital banking will continue to shrink the number of global bank branches by 4% to 5% per year. Why bank in person when you can do it online? Scandinavia has already seen half of its bank branches close in the last 5 years. Bank branches won’t disappear completely like Blockbuster video stores, as customers will still need to visit physical stores for complicated transactions and to make complaints face-to-face. But counter transactions are disappearing quickly. The challenge now is to try and get to that right mix of branches and digital offerings as quickly as possible. That means the sound of the shutters coming down permanently may become deafening in 2018.

Fintechs are friends

Despite the tens of billions of dollars of VC money piling into the fintech sector over the last 5 years, the meteor strike that was going to wipe out the banking dinosaurs hasn’t happened. Instead, fintech has lit an innovation flame under the incumbent banks and accelerated their evolution. 2018 will likely see more fintech acquisitions as large players buy rather than build. More broadly, bank innovation will have more of a business-as-usual feel, as banking startups find ways to play well with established players. While the dinosaurs will remain dominant in 2018, in 2019 and beyond, big tech beasts may appear and present more of an extinction threat to the banks. But in 2018, these super-predators will likely still be just sharpening their claws.


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