After years of complaints about the unnecessary regulations overburdening the mortgage industry, many people are probably happy that the new administration is keeping its word regarding bridling, and even eliminating, the actual number of them. However, we should not celebrate too soon; instead, we should take a close look at what actually happens when you try to eliminate two regulations for every one created.
Just like in two-for-one shopping deals, there are downsides to this seemingly good deal. Usually, the deal applies to items that are the same or equal value and that is all. You get a deal, and you go home and enjoy your deal. When it comes to eliminating regulations, the process is not as easy as ordering it done. Under the executive order, for each new rule created, federal agencies must identify at least two to be repealed. In addition to the identification, the directive states the agency must make sure the total cost of all new regulations is zero. What is unclear is how the agency defines "regulation." Coincidentally, the agency that has the say the authority to determine that, the Office of Management and Budget, does not currently have a director. This yet-to-be-determined person could also decide whether there should be exemptions to this order beyond those for military, national security and foreign affairs functions.
The time and effort required to remove the regulation's mandates could prove more onerous than simply complying, a tall order for companies that have already come through the fire of regulatory implementation.
It is easy to discuss change from board rooms, or over drinks and dinner. The idea that fewer regulations will loosen credit in the industry and add more jobs in others is a nice thought. Hypothetical scenarios do not leave room for the intricacies or the true cost of change. The people on the front lines actually doing the work know that it takes far more planning, effort and capital — both human and financial — to actually implement change. It can be needlessly disruptive to say the least. For instance, calling for the dismantling of agencies such as the Consumer Financial Protection Bureau, Fannie Mae and Freddie Mac has been a constant in the industry for years. However, the processes by which that can happen, and what the industry will look like after those entities are gone or modified, are larger questions without clear answers.
Regardless of the end goal, or even the process, around regulatory change, lenders and servicers cannot hesitate in implementing technology. Not technology for technology's sake, but systems that are flexible and robust enough to allow companies to be compliant now and after the regulatory dust settles. It took years for the industry to acclimate and implement the regulations put in place as a result of Dodd-Frank. This new disruption could have the opposite effect of the desired results. How will eliminating these regulations affect the origination and servicing processes and ultimately, the borrower?
Having the proper systems in place will allow companies to maintain their day-to-day efforts without having to make drastic business shifts just for the sake of new or eliminated regulations. Delaying technology adoption could be a dire mistake that would end up costing companies more time, effort and money than simple compliance.
Sanjeev Dahiwadkar is the president and CEO of IndiSoft.
