Automation Helps Lenders Stay Ahead of the Compliance Curve
Manually tracking regulatory changes can be a chore, and results can be inconsistent. Automated compliance solutions can reduce administrative burden and help to provide more consistent rates to borrowers. Here are some pending regulatory changes being considered by the Consumer Financial Protection Bureau (CFPB), and some ways automated compliance tracking can help your organization with the latest information.
Decreased Reporting Frequency
Average Prime Offer Rate (APOR) is a benchmark used to determine the Annual Percentage Rate (APR) for certain types of loans, such as mortgages. Currently, APOR is updated weekly, based on a survey of large banks. The Consumer Financial Protection Bureau (CFPB) is considering switching to monthly or quarterly reporting, to reduce the administrative burden on lenders and allow them to offer more consistent rates to borrowers.
Broader Dataset
The CFPB is also considering expanding the dataset it uses to calculate APOR to include a broader range of sources, including credit unions and smaller banks. This could result in more accurate and representative rates, but it also may serve to make rates more volatile.
More Loan Products
In addition to a broader base of data sources, the CFPB has announced plans to drop 1-year variable rate mortgages and add products of more recent vintage, including 20-year fixed-rate mortgages and 10-year/6-month adjustables.
These new products will provide more accurate and comprehensive data for creditors to use when determining whether a loan meets the QM requirements. This can help validate that borrowers are not being given loans that they cannot afford, which might lead to default and foreclosure.
All of these changes are being made to make the APOR more sensitive and attuned to current market conditions. While that is, generally speaking, a good thing, it could lead to increased volatility, which could make it more difficult for lenders to offer stable and predictable rates to borrowers.
If APOR rates become more volatile or less predictable, borrowers may have a harder time budgeting and planning for their loan payments. This could also make it more difficult for borrowers to compare rates across different lenders and loan products. Automated compliance tools make it easier for lenders to keep track of the latest developments in changes proposed by the CFPB and other regulators to ensure nothing falls through the cracks.
A Better Way Forward
Manually tracking regulatory changes can require manual review of CFPB announcements as well as those of other federal and state groups. This can lead to some regulatory risk. Compliance tools within a lender’s Loan Origination System (LOS) or Mortgage Compliance Management software are powerful ways to store and react to regulatory changes. Check out Empower®, Black Knight’s loan origination system, and Regulatory Assist to learn more.
