CFPB holds firm on the effective date for its mortgage rules, but promises to be ‘reasonable’

In response to data released by the American Bankers Association meant to convince the CFPB to delay the effective date of its mortgage rules, CFPB Director Richard Cordray said the bureau will not change the onset date of its rules, which go into effect January 2014.

In response to data released by the American Bankers Association meant to convince the CFPB to delay the effective date of its mortgage rules, CFPB Director Richard Cordray said the bureau will not change the onset date of its rules, which go into effect January 2014. However, ABA’s data does appear to have convinced the bureau to be reasonable with banks as they implement the new rules.

In a letter sent to Cordray and three other head regulators at the Federal Reserve, Office of the Comptroller of the Currency and the FDIC on August 23, ABA reported the results of a survey which show banks and the vendors that serve them will need additional time to comply with the new regulations.

Multiple aspects of the rules will require banks to implement new software and computer systems; overhaul policies, procedures and processes; and train staff, ABA wrote to the regulators. Then banks must test the changes for quality assurance. Most of these steps cannot occur absent a final vendor product, ABA explained.

But the vendors on which banks depend have not yet updated their software due to the many changes the CFPB has made to its rules. The ABA pointed to a survey it facilitated in June of senior mortgage officers at its member banks. About 60 percent of banks said that their vendors had not given the bank a date for the release of updated software and programming. Only 8 percent of banks anticipate receiving vendor products by the end of October; and 19 percent said they expect to receive updated software by the end of December.

Some vendors provide periodic updates to banks rather than one single, large update. For these banks, 56 percent said their vendor had not provided the date of the first installment of the project; 17 percent anticipate receiving the first installment during September-October; and 8 percent anticipate receiving the first installment somewhere in November or December.

After the updates are received, further implementation still must occur internally at the banks. For this they need additional time. “Banks must adjust and test the vendor product,” said Bob Davis, executive vice president of mortgage markets, financial management and public policy at ABA. Of the bankers responding to the survey, 46 percent said it will take up to three months to fully integrate a vendor’s product; 26 percent expect to take up to six months; and 10 percent said it will take more than six months.

Many banks have a technology freeze at year end in order to complete year-end tax and reporting requirements. “The actual amount of time for financial institutions to comply is further shortened by [this],” Davis said. “It may not be possible to test or revise the new mortgage compliance systems during this lock‚Äźdown period.”

About 26 percent of respondents to ABA’s survey said their institutions have a year-end blackout period on information technology changes that will impact implementation of the mortgage rules. Of those institutions with a blackout period, 56 percent said that the blackout would last up to four weeks; 32 percent said it would last less than two weeks; 12 percent said the blackout would last up to eight weeks.

In September, Cordray resisted the case made by this data for a delay in the effect date of the mortgage rules. However, he did not turn a blind eye to difficulties raised by the ABA letter.

January 2014 is “a date that Congress was pretty firm in setting,” Cordray said during an interview on Bloomberg. ”Our response has been to understand that we want to work with industry and make sure that they can get it right and that we’re reasonable about it, and I think we have been and will be.”

Fredrikson & Byron Law