Compliance Regulators “Big Data” Grab
Imagine you are the head of all the regulatory agencies for bank compliance, or maybe just the CFPB. Sorry. But someone has to do the job in this story… Better you than me.
As you know, mortgage lenders of a certain size file an annual report, of a list of all home mortgage related applications at their institution. This list includes specific data required from each application. Ditto for institutions that file the CRA Loan Register; which is concerned with collecting the detail related to small business and small farm lending.
HMDA as we know it today has been around for 25 years or so…the Loan Register, for more than a decade. Come on man, there is nothing new and sexy in this data anymore. As the head of all things compliance, you have got to see the need to collect more.
Community and Advocacy Groups are crying foul over the details in this public data already – which has not been expanded upon (and then made publically available.) These groups think you are slow playing your hand on enforcement action. Financial institutions feel your hot breath on their neck at all times. They kind of want you to back off. The costs of compliance are skyrocketing. No other area of “Banking” is seeing this kind of inflationary budget increase cycle.
So, how can you help both the banker and the “public good?”
Sage advisors compel you (as the boss of all) to suggest that, “the regulators would be pleased to do all of this collection and submission stuff for bankers” – as a way of relieving their burden.” How sweet. And while we are at it, let’s get some more information about these mortgage applications that will help us (the examiners) provide more consistency in examinations and satiate the public’s hunger for more and their right to know.
OK, story time is over. Now let’s get real.
Now there is word (surprise?) from Michael Byrne, the CFPB’s HMDA operations lead, who announced at the Mortgage Bankers Technology event this week in Orlando – that the CFPB is showing pieces and parts of their new web-based tool that will save oodles of time and solve massive HMDA headaches for bankers. Huh? Gang, there is no massive headache. This is a solution seeking a problem. This very simply, is a good old fashioned Trojan Horse story about to unfold before your very eyes. HMDA may be the easiest regulation to satisfy; the Federal Reserve even provides free software to collect and file. It doesn’t take much to see the CFPB relieving the Fed of their “burden.”
This article is essentially about Big Data and the very real Big Data Compliance Grab to come. Even I admit it is happening faster than I thought. OK, so what? Let’s break this down. Why should you push hard against it; that is, if you are a banker?
The government (the regulators in this case) has the well earned reputation of rarely doing something nice, without an ulterior motive. Can we find one in this? Yep. Let’s go a step further. The community groups and regulators have been clamoring for additional data fields to be collected on both HMDA and CRA (small business, minority owned and women owned business) applications and loans. Once the regulators have the interface as Mr. Byrne described as “open-source software code, which presents an opportunity for loan origination system vendors to integrate it into their own technology,” then they won’t need the bank to OK anything – they will simply suck all the new fields out of the loan system. Better? Intrusive. Yet in time (very soon), the regulators will claim that new data collection isn’t a burden, as they can get the additional fields without you direct from the loan system. By having even more personal information about each application the CFPB will have more “data” to collect, analyze and use against you. My, what big teeth you have grandma.
What new data are we talking about? The regulators want HMDA credit data for starters. They also want additional pricing data and borrower information. There is more, of course – but I don’t want to get too into the weeds. The CFPB believes that such data would help the bureau observe how the ability-to-repay rule is impacting the market and would also help the bureau monitor developments in specific markets such as multi-family housing, affordable housing and manufactured housing. The proposed rule would also require that lenders report, with some exceptions, all loans related to dwellings, including reverse mortgages and open-end lines of credit. Hey, why not give them everything?
Despite significant privacy concerns already being raised, the CFPB specifically stated that it is looking at ways to improve how the public can securely use this HMDA data. There it is; “the public good.” And please take comfort in the fact that the software development tools being used to develop these new and easy web programs offered by the CFPB utilize open source architecture. So, all this private data is just sitting on the web at the CFPB. Really? Can you say Target, Best Buy, and the countless other stories about hacking? Just asking?
This is just so Orwellian it makes my head spin. The CFPB has no congressional oversight. They have unchecked, absolute power. Which as ‘ol George said, corrupts, absolutely.
Mr. Banker, you have just lost control of the only thing you own: The data. The story. You lose the ability to create the context by which your institution should be examined. If the regulators own the data (to make it easy for you, insert smiley face here) they will add additional data points and statistical modeling to these new pieces in ways you are not prepared to respond. You will very likely find your bank defenseless. It will cost 100X more to have the talent on board to build the models the examiners will build in this scenario, than it does now to edit check HMDA properly for filing. Really. What a crock.
And remember, once the CFPB (and others) have the data before you can review, audit or confirm that what was uploaded even matches the file. Many bankers as you know, perform self tests on the quality of data collected and reported. As a banker, isn’t this the data you wish to share? Of course.
If this happens, you will only control your community development activity. Oh, but don’t worry, they will soon help you manage this also. The CFPB just wants to help make it easier, right?
And let’s give the Community Groups even more access to data. That can’t be a bad thing, can it? And where are the Community Groups and the CFPB as it relates to the proliferation of payday lenders and title loan outfits that have their sites squarely on the low and moderate income among us, who are under-banked? Where is the help for them? Who is standing up for them? Apparently the 30%-40% or more being charged by these folks isn’t a concern. Nothing to see here…move along.
So what’s the cost of this new service? Absolutely free! That is unless and until you factor in the forthcoming legal fees and potential civil money penalties…
I’m just saying…it is a Big Data Compliance grab. This is a massive shift in banking examination. And these data collection and reporting changes will not make it easier for bankers, regardless of the promises to do otherwise. And you must muster all of your courage to stop it.