ABA Survey on Bank Implementation of the New Mortgage Rules

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1 Robert R. Davis Executive Vice President Mortgage Markets, Financial Management & Public Policy (202) August 23, 2013 The Honorable Richard Cordray Director Consumer Financial Protection Bureau 1700 G Street, NW Washington, D.C The Honorable Thomas J. Curry Comptroller of the Currency Office of the Comptroller of the Currency 400 7th Street SW Washington, D.C The Honorable Ben S. Bernanke Chairman of the Board of Governors Federal Reserve System 20 th Street and Constitution Avenue, NW Washington, DC The Honorable Martin J. Gruenberg Chairman Federal Deposit Insurance Corporation th Street, NW Washington, DC Dear Sirs: Re: ABA Survey on Bank Implementation of the New Mortgage Rules The American Bankers Association has been in close communication with our member banks regarding the mortgage-related regulations that the CFPB implemented this year. Our members have shared information regarding their compliance efforts, questions regarding various aspects of the rules, as well as practical challenges associated with fully complying with all of the new requirements by the January 10, 2014 effective date. Community banks in particular reported that one of the most burdensome aspects of compliance is the development, customization, and implementation of information technology projects, including software, programming, and interfaces. In June 2013, ABA surveyed senior mortgage executives of member banks to learn more about their overall mortgage implementation efforts and the progress that their vendors have made in delivering technology projects related to implementation of the new mortgage rules. 1 A copy of the survey is enclosed. The survey data illustrate the need for a temporary delay in the effective date in order to give banks a meaningful opportunity to fully implement the new rules, as well as the ongoing revisions to the rules, before the new legal and regulatory liabilities for non-compliance take effect. We believe that this approach will best assure an orderly transition to the new mortgage regulatory framework. If the effective date is not extended, we request that your respective agencies take vendor preparedness into account when examining regulated institutions for compliance. Community banks in particular are highly dependent on the ability of vendors to deliver technology-related services that are critical to bank compliance efforts. 1 The Member Survey on Implementation of the New Mortgage Rules ( Mortgage Implementation Survey ) had the participation of 187 banks. Approximately 72 percent of participating institutions had assets of less than $1 billion in assets.

2 August 23, 2013 Page 2 Below is a summary of key data points from our survey. 2 Vendor Preparedness. Multiple aspects of the rules will require banks to implement new software and computer systems; overhaul policies, procedures, and processes; train staff; and test these changes for quality assurance. Many of these steps cannot occur absent a final vendor product. 60% of respondents stated that their vendor(s) had not provided information on when they will provide all completed software and programming updates to the bank; 8% of banks anticipate receiving vendor products in September-October 2013; and 19% anticipate receiving their products during the November-December 2013 timeframe. For institutions that will receive vendor products over time (as opposed to all at once), 56% stated that their vendor had not provided information on when it will deliver the first installment of the project; 17% anticipate receiving the first installment during September-October 2013; and 8% anticipate receiving the first installment during the November-December 2013 timeframe. Integration. Even after the vendors finally release their deliverables, banks must adjust and test the vendor product. Our survey inquired about the amount of time that banks anticipate that it will take to fully integrate a vendor s products once they are made available to the institution. 46% of respondents expect to take 2-3 months; 26% expect to take 4-6 months; and 10% expect to take more than 6 months. The actual amount of time for financial institutions to comply is further shortened by the information technology freeze that some institutions have in place to manage existing year-end tax and reporting requirements. It may not be possible to test or revise the new mortgage compliance systems during this lock down period. As a practical matter, some of our members report that the compliance deadline will be in November or December, 2013 due to the annual information technology freeze. 26% of respondents reported that their institutions have a year-end blackout period on information technology changes that will impact implementation of the mortgage rules. Of those institutions with a blackout period, 56% said that the blackout would last 2-4 weeks; 32% said it would last less than 2 weeks; 12% said the blackout would last 5-8 weeks. 2 As a result of subsequent data analysis, the data reported in the member survey and in this letter differs somewhat from that reported in our comment letters submitted to the CFPB on July 22, See and The current analysis removed Not Applicable responses from the dataset, resulting in minor changes to the survey summary for some questions.

3 August 23, 2013 Page 3 ABA underscores the need for regulators to consider the ability of banks of all sizes to fully comply by the effective date. In light of the ongoing amendments and clarifications to the rules as well as varying degrees of vendor preparedness, we also urge the agencies to take a bank s good-faith compliance efforts into consideration when examining an institution for compliance with the new rules. We also note that banks will be required to complete a significant amount of internal work once a vendor delivers its software, interface, and related information technology updates. Please contact me if you would like to discuss this issue further. Sincerely, Robert R. Davis Attachment

4 Member Survey on Implementation of New Mortgage Rules Summary of Survey Results August 2013

5 Table of Contents Survey methodology 3 Chart 1: Survey participant profile by bank asset size 4 Chart 2: Annual mortgage origination volume 5 Chart 3: Number of mortgage loans serviced 6 Chart 4: Do you plan to use a vendor or consultant to assist with implementation of the new mortgage rules? 7 Chart 5: How does your bank plan to handle the following aspects of implementation? 8 Chart 6: When does your vendor anticipate being able to provide ALL completed software and programming updates to your bank? 9 Chart 7: Will the software and programming be provided to your institution all at once or over time? 10 Chart 8: If the vendor(s) will provide the changes over time, when will the FIRST installment be made available to your institution? 11 Chart 9: How long do you anticipate that it will take your bank to fully integrate your vendor s products once they are made available to the bank? 12 Chart 10: How much does your bank anticipate spending on vendor and consultant fees in order to come into compliance with the new rules? 13 Chart 11: Does your bank have a year end blackout period on IT changes that will impact implementation of compliance for the mortgage rules? 14 Page 2

6 Survey Methodology In June 2013, ABA surveyed senior mortgage executives of member banks to learn more about their overall mortgage implementation efforts and the progress that their vendors have made in delivering technology projects related to implementation of the new mortgage rules. By the response cutoff date, 187 banks had participated in the survey. Approximately 72 percent of participating institutions had assets of less than $1 billion. Staff Contributors: Bob Davis, Executive Vice President, American Bankers Association Rod Alba, Vice President, Sr. Regulatory Counsel, American Bankers Association Joe Pigg, Vice President, Sr. Counsel II, American Bankers Association Krista Shonk, Vice President, Sr. Regulatory Counsel, American Bankers Association Data Processing and Analysis: Jane Yao, Senior Vice President, Benchmarking & Survey Research, American Bankers Association 3

7 Chart 1: Survey Participant Profile by Bank Asset Size 25% 3% 36% What is the asset size of your bank? Less than $250M $250M $500M $500M $1B $1B $10B More than $10B 20% 16% Number of valid responses = 187 4

8 Chart 2: Annual Mortgage Origination Volume 4% 3% 9% What is your bank s annual mortgage origination volume? 28% 15% 15% 18% 8% Less than $1M $1M $10M $10M $20M $20M $50M $50M $100M $100M $500M $500M $1B More than $1B Number of valid responses = 184 5

9 Chart 3: Number of Mortgage Loans Serviced 18% 8% 14% 3% 3% 1% 2% How many mortgage loans does your bank service? 51% Less than 1,000 1,000 2,500 2,500 5,000 5,000 10,000 10,000 15,000 15,000 20,000 20,000 30,000 More than 30,000 Number of valid responses = 184 6

10 Chart 4: Do you plan to use a vendor or consultant to assist with implementation of the new mortgage rules? Percentage of Banks Yes No 70% 80% 86% 84% 80% 79% 30% 20% 14% 16% 20% 21% < $250M $250M $500M $500M $1B $1B $10B >$10B All Respondents Bank Asset Size Number of valid responses = 184 7

11 Chart 5: How does your bank plan to handle the following aspects of implementation? (answer all that apply) In house Use a vendor or consultant Combination Loan originator compensation tracking Policies and procedures Default servicing Appraisal management Appraisal selection HMDA data Data management Escrow disclosures Periodic statements Origination disclosure Entire origination process up to and including settlement Settlement process Training 78% 71% 67% 63% 63% 60% 60% 58% 56% 56% 55% 48% 45% 4% 17% 5% 24% 11% 22% 18% 19% 18% 19% 9% 31% 8% 32% 16% 26% 21% 23% 15% 28% 7% 38% 14% 38% 7% 49% Number of valid responses = 169 0% 25% 50% 75% 100% 8 Percentage of Banks

12 Chart 6: When does your vendor anticipate being able to provide ALL completed software and programming updates to your bank? Our vendor has not provided information on when it will be compliant with the new rules 60% January 2014 or later 5% November December % September October % July August % May June % Number of valid responses = 144 0% 25% 50% 75% Percentage of Banks 9

13 Chart 7: Will the software and programming be provided to your institution all at once or over time? We use multiple vendors. Some of them will provide all of the changes at once, but other vendors will provide the software and programming in multiple phases 59% In stages 34% All at once 6% Number of valid responses = 140 0% 25% 50% 75% Percentage of Banks 10

14 Chart 8: If the vendor(s) will provide the changes over time, when will the FIRST installment be made available to your institution? Our vendor has not provided information on when it will be compliant with the new rules 56% January 2014 or later 2% November December % September October % July August % May June % Number of valid responses = 132 0% 25% 50% 75% Percentage of Banks 11

15 Chart 9: How long do you anticipate that it will take your bank to fully integrate your vendor s products once they are made available to the bank (including customizing and testing the vendor s product, finalizing associated policies and procedures, and conducting training)? 10% 18% One month or less 26% 2 3 months 4 6 months More than 6 months 46% Number of valid responses =

16 Chart 10: How much does your bank anticipate spending on vendor and consultant fees in order to come into compliance with the new rules? 7% 3% 15% 52% Less than $20K $20K $50K $50K $100K $100K $250K More than $250K 23% Number of valid responses =

17 Chart 11: Does your bank have a year end blackout period on IT changes that will impact implementation of compliance for the mortgage rules? Yes 26% 12% If Yes, how long is the blackout period? No 74% Number of valid responses = % 32% Number of valid responses = 41 Less than 2 weeks 2 4 weeks 5 8 weeks 14