“Agile” in the software development industry refers to a software building process that relies on a series of short development cycles called “sprints” to prototype, test and release new software in faster, more efficient ways. Although “agile” is not a word heard often when referring to financial institution operations, being quick and flexible is essential to success in today’s business environment, particularly when implementing regulatory changes.
Let’s take the example of the recent changes to the Home Mortgage Disclosure Act (HMDA) to explore why agility is a key to success.
From the time of the issuance of the HMDA final rule on 10/28/2015 until 08/24/2017, financial institutions and other mortgage lenders were operating under the impression that the 2015 rules were truly “final.” Under that scenario, institutions were exempt from HMDA reporting beginning 01/01/2018 if they:
- Had assets of less than $44 million;
- Did not operate at least one office in a Metropolitan Statistical Area;
- Did not originate a purchase or refinance of a purchase loan in the prior year;
- Originated less than 25 closed-end mortgage loans in both of the two prior years; and/or
- Originated less than 100 open-end home equity lines of credit in both of the two prior years.
In response to industry feedback, the Consumer Financial Protection Bureau (CFPB) revised the final rules so that fewer institutions would be required to report. The proposal was issued on 04/25/2017 and the CFPB announced finalization of those changes on 08/24/2017. The final rule was then published in the Federal Register on 09/13/2017.
In the four months that the CFPB was receiving and considering comments, institutions were in limbo - what to do? Institutions couldn’t fully move forward presuming that the rule would be finalized as proposed. That would be a mistake. There are typically changes between a proposed and a final rule, even if they are minor.
After waiting for four months, we now know the new requirements.
The 2017 HMDA rule exempts lenders using the existing criteria (the asset threshold will be updated in 12/2017) and the following new or clarified criteria:
- Originating less than 25 closed-end mortgage loans in EITHER of the two prior years; and/or
- Originating less than 500 open-end home equity lines of credit in EITHER of the two prior years. Note that the less than 500 limit will revert to less than 100 effective 01/2020.
A bit dizzying, isn’t it?! If you are breathing a sigh of relief that you will not need to report either or both closed-end loans and open-end home equity lines of credit, for now, consider the work that’s already been completed. You only have until 01/01/2018. You’ll need to collaborate with other team members, as in an agile software development environment, to ensure you are all going in the same direction to achieve consistency and compliance with the rules.
To that end you should consider whether to further update or perhaps revert to prior versions of policies, procedures, monitoring and audit programs if the 2017 rule means that you will not in fact become a HMDA reporter. You may need to cancel scheduled system updates. If your staff is trained on the 2015 rules, you’ll need to “un-train” or retrain them. You’ll need to assign and track these tasks to ensure timely completion.
Using an automated regulatory change management system (like RegAdvisor® Pro) can turn “labor intensive” into “agile” by allowing you to quickly and easily revise your implementation steps when necessary and assign work to the right people. As more financial institutions are realizing, automation is critical when you’re facing the volume of changes we’ve seen in recent years...especially when the changes are changed!