Kacey Olson, Director of Compliance at ARMCO. Kacey’s achievements include spearheading advancements in ARMCO’s ACES Intelligent Questionnaires giving lenders more efficient, simplified tools for achieving the highest level of quality and compliance. Prior to ARMCO, Kacey spent nearly 20 years at EverBank, where she was a Compliance Analyst.
Broadly speaking, what effect has the regulatory response to COVID-19 had on financial institutions?
KO: Right now, banks and credit unions are being encouraged to lend more to their customers/members and loosen some of their lending requirements so that they can offer more services and get money into the pocket of consumers. They've also been instructed by all of their prudential regulators to provide forbearance options on credit card payments and personal loans to help consumers that have been financially impacted by COVID-19. What’s interesting is how regulators are broadly defining the term “impacted.” Loss of employment is an obvious interpretation, or even if a consumer is gainfully employed, regulators are including any situation that requires the consumer to be home – childcare issues, personal illness or serving as a caregiver for a sick family member – when considering financial impact. They've really broadened the definition of how consumers may be impacted by this to really cover the gamut of what everybody is truly going through and are not going to exclude anyone having any kind of issues as a result of this pandemic right now.
Of course, opening up lending standards like this can be risky, but right now, the NCUA and other prudential regulators are willing to take a little bit of a risk because the loans and credit products they are encouraging financial institutions to offer aren’t large-balance loans. They're emphasizing short-term funding to get someone through a targeted period of time. So, instead of borrowers going to high-risk payday loan lenders and trying to seek $3,000 to make it till next month, the regulators want them to go to their financial institution, a trusted source who can give them a low interest rate and where they won’t be subjected to subpar lending practices.
Do you foresee an increase in fraud as a result of this?
KO: It’s difficult to say whether we’ll see a significant increase in fraud from borrowers on these smaller-balance loans and credit products, but it’s always possible. Where we’re already seeing fraud, or at least the potential for fraud, is with the stimulus checks from the federal government. The first check hasn't even been issued, and people are already receiving fake checks in the mail. What these fraudsters want recipients to do is cash this fake check so the fraudsters can then obtain the recipients’ banking information and defraud them of their money. These fraudsters are clever. As is always the case, fraudsters continue to stay two-steps ahead of prevention measures, manufacturing ways to defraud vulnerable consumers at opportune times such as this pandemic. Fraud alerts are being issued from every angle warning against such known, and sometimes, anticipated schemes.
Getting more specific, what impact has COVID-19 had on mortgage lending?
KO: With the emphasis regulators have placed on offering forbearances to consumers financially impacted by COVID-19, there has been a growing concern amongst the mortgage industry on servicing. All of the agencies and GSEs have now issued special servicing provisions in various ways; some of them align, some of them go a little further than others. Servicers have the guidance they need to start working with those borrowers, but the problem they're going to be facing is they don't have the bandwidth and staff. They're all trying to beef up, especially in their default servicing sectors right now because lots of folks are unfortunately losing their jobs out there, and it's creating a huge demand for assistance from mortgage servicers. As a result, mortgage servicers around the industry are hiring rapidly because they need immediate help to get these programs implemented, and they are just going to be inundated with these requests for assistance for a long time to come. Now, the good news is servicers have developed fantastic policies, procedures and practices in response to the last mortgage meltdown, and they have been through the ringer. For all intents and purposes, they are ready for something like this and should have really good relief options ready to go for these borrowers. What’s more, implementing those and monitoring these accounts should not be as difficult as it was the first time around because they've already gone through this.
Now, the origination side of the house has been hit in a completely different way. The challenges that they are facing, first and foremost, are the loans in pipeline where applicants are no longer, or soon to be no longer, gainfully employed and perhaps now do not qualify for those mortgages that they have been pre-approved for or working towards closing. That truly stinks for those borrowers. There’s really no other way to describe it, and unfortunately, they're not going to have many options. Additionally, for those borrowers who are lucky enough to continue their employment, they are having a tremendous amount of issues in obtaining verifications of employment; the IRS has completely stopped issuing IRS 4506-T transcripts. There are also issues, obviously, with doing on-site property appraisals and inspections on new construction homes, and the list goes on and on. So, although lenders may have borrowers in their pipeline who continue to be gainfully employed, they're going to run into other stumbling blocks in order to get their loans closed. Getting those loans to actually move through pipeline right now is going to be very tricky for them in the current environment, and as of now, there’s not really an end in sight to the current crisis.
We've also seen a variety of mortgage lenders that have proprietary portfolio products, such as jumbo loans, products that exceed conforming loan amounts or non-QM loans, cease funding on all of those alternative mortgage lines. To my knowledge, a great majority of these lenders have completely closed down all their pipelines and production of those loans to retain as much liquidity as possible because they were self-funding those loans before they could sell them on the secondary market. Therefore, unless borrowers are obtaining an agency or GSE loan, there are very limited alternative loan types closing at this point.
One of the more surprising regulatory reliefs gained on the origination side has been the suspension of HMDA reporting. April 1, 2020 was supposed to be the date by which large financial institutions made their first submissions of quarterly reporting. The CFPB has pushed that quarterly reporting start date off to an as-yet-to-be-determined date. They've also said they will not adversely look at lenders in a negative light if they are unable to meet their quarterly reporting requirements and have directed them to put that report off until further notice.
This temporary delay provides lenders with an additional opportunity to practice their new quarterly HMDA processes and procedures, and if they find any deficiencies in those processes, they now have time to re-evaluate, test and figure it out before CFPB turns that requirement back on. This gives them a little bit more time to refine their process and ensure that, once they do turn it back on, they've plugged all their holes and are ready to go. It’s almost an extended implementation timeline, which the industry almost never gets.
How is ARMCO helping the industry keep pace with the changes that may impact their day-to-day operations?
KO: Our Compliance Team is tracking all regulatory changes and temporary directives issued in response to COVID-19 that could affect our clients, and we’ve created a special question set inside ACES to ensure our users have the most current information available when conducting their audits. In addition, we are also logging, recording and aggregating all COVID-19 compliance news and regulatory updates/changes under the “Disaster News” category in our Compliance NewsHub, which anyone in the industry can access for free. Additionally, we are tracking all announced changes on our Compliance Calendar and tagging pandemic-related changes under “COVID-19,” making it extremely easy for our customers to search, filter and find news and announced changes related to COVID-19. Those interested in subscribing to our Compliance NewsHub Weekly Roundup and Compliance Calendar can do so at https://www.acesquality.com/compliance-newshub/subscribe.