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How to Assess the Impact of RESPA-TILA to Your Lending Processes

The RESPA-TILA Gorilla: Process Changes to Meet Compliance Needn’t Be a Walk Through the Jungle Blog Series Part 1

Driven by the Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress required the Consumer Financial Protection Bureau to come up with a simpler disclosure process to help consumers better understand what they’re getting into when applying for a home loan. The resulting integration of previous disclosure regulations (RESPA and TILA) basically means that instead of providing four disclosure forms to the borrower, the lender now provides two. While the odds of bringing about a case of pesky eye strain have decreased for the borrower, this seemingly simple reduction in paperwork has huge repercussions on the lender’s internal processes. With an August 2015 deadline to comply with the new RESPA-TILA regulation, and stiff penalties outlined for non-compliance, mortgage lenders are in a bit of scramble.

Here’s how one forward-thinking Mortgage Lending Company is taking control using Business Modeling. A swat team of project managers and subject matter experts first set out to identify all current processes that use information from the four well-known legacy forms (Good Faith Estimate of Settlement Costs, Initial Truth-in-Lending Disclosure, Final Truth-in-Lending Disclosure and HUD-1) that are now combined into two new forms (initial Loan Estimate and final Closing Disclosure). The impact is big: upwards of a hundred current process flows have been identified that need to be modified to support the new regulation. While some processes only need minor modifications, many of them need to be totally rewritten.

How did they get their arms around this monster? As our mothers have always told us, break any overwhelming project into baby steps to make it more manageable.

  1. Divide and Conquer
  2. Brainstorm the different areas of the business that are affected by the disclosures. Assign a project manager to each. For RESPA-TILA, think Acquisition, Receiving, Underwriting, Funding…and probably others.

  3. Assemble a Killer Swat Team
  4. Each project manager gathers the subject matter experts from the business, and probably some from IT assuming that there are systems-level support and workflows for the processes in question. This is the team that will make sure all perspectives are taken into account.

  5. Walk the Floor (aka Walk the Process Model)
  6. Gather those SMEs around visual process models to map out each step and come to agreement on how the current process really works. If you have all your processes captured in a central repository already, do a little cheer, because you are one step ahead.  If not, roll your sleeves up and get busy - avoiding the temptation of shortcuts on this step now will be an advantage later. For something like disclosures, these models will need to start at a high level and work their way down several layers of decomposition. Because of the technical nature of the regulation, workflows are modeled at a very detailed level to allow for visibility into every part of the process that is affected.

  7. Bring the Cross-functional
  8. Bring your teams together and make sure that the transitions between processes are understood, agreed upon and documented. You may discover some of models from the previous step need a little re-work: that’s ok, and that’s why this step is so important.

  9. Take a Deep Breath
  10. Hard work pays off! Celebrate that you now know what you are dealing with, and that you have exactly what you need to move to the next step: planning for change.

For more on the on The RESPA-TILA Gorilla: Process Changes to Meet Compliance Needn’t Be a Walk Through the Jungle Blog Series, check out the next post: Key Factors in Meeting RESPA-TILA Requirements

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