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Implementation Letter to CFPB


									January 2, 2013

David Silberman
Associate Director
Research, Markets and Regulations
Consumer Financial Protection Bureau
1700 G Street, N.W.
Washington, D.C. 20552

Dear Mr. Silberman:

As you are aware, mortgage lenders and the consumers they serve face unparalleled
regulatory change in the months ahead as a result of the impending implementation of
the many rules implementing the mortgage lending provisions of the Dodd-Frank Wall
Street Reform and Consumer Protection Act (Dodd-Frank). To ensure that these
changes achieve their objectives of protecting consumers, the Mortgage Bankers
Association (MBA)1 offers the following comments to ensure that implementation is
carried out as efficiently and effectively as possible.

Specifically, in January, 2013, the Bureau of Consumer Financial Protection (CFPB) will
be finalizing new national rules affecting every aspect of the loan process. They include
rules governing origination, underwriting and servicing requirements under the Ability to
Repay, Servicing, Loan Officer Compensation, High Cost Loan, Appraisal and Escrow
rules. Based on the proposals offered for public comment these will comprise
thousands of pages of preamble, regulation and commentary. Soon after these rules
are issued, several other major rules will follow including the CFFB’s RESPA/TILA
Integrated Disclosure Reform rule, a joint agency Risk Retention rules and Basel III, to
name a few.

In comments on several of the CFPB’s proposals, MBA recommended a staged
implementation process after the issuance of each of the rules that would provide
opportunities for industry to raise frequently asked questions and for the Bureau to

  The Mortgage Bankers Association (MBA) is the national association representing the real estate finance industry,
an industry that employs more than 280,000 people in virtually every community in the country. Headquartered in
Washington, D.C., the association works to ensure the continued strength of the nation's residential and commercial
real estate markets; to expand homeownership and extend access to affordable housing to all Americans. MBA
promotes fair and ethical lending practices and fosters professional excellence among real estate finance employees
through a wide range of educational programs and a variety of publications. Its membership of over 2,200 companies
includes all elements of real estate finance: mortgage companies, mortgage brokers, commercial banks, thrifts, Wall
Street conduits, life insurance companies and others in the mortgage lending field. For additional information, visit
MBA's Web site:

    1717 Rhode Island Ave., NW, Suite 400 |        Washington, DC 20036       | |
                                                  (202) 557-2700
address these through official commentaries. Such a process is crucial to effective
implementation and compliance. Only after needed clarifications have been issued
should a reasonable period for implementation begin.

To be specific, we believe after each rule is issued, the CFPB should allow at least
three months for initial review to identify technical errors, unintended consequences and
areas of ambiguity. To facilitate that process, it should make staff available in as many
venues as possible to explain the rules and receive questions. MBA met last month
with CFPB staff and offered use of MBA conferences, committees and all other means
at our disposal to disseminate information and receive questions. We look forward to
facilitating this process and hope CFPB will agree to participate.

While MBA greatly appreciates the efforts of the CFPB to develop a robust commentary
to accompany each rule, we do not believe any degree of commentary, written before a
rule is issued, will alleviate the need for reliable responses to the many questions that
will present following the rules’ issuance. Experience with the Federal Reserve's Loan
Officer Compensation and Mortgage Disclosure Improvement Act rules as well as
HUD’s RESPA Rule are testament to this fact.

After questions are definitively answered, an implementation period for each rule of no
less than twelve months should commence. During that period, training, systems
changes and other implementation actions can begin in earnest, guided by the
knowledge that most potential issues have already been discussed and hopefully
resolved. Although the industry has to some extent followed CFPB deliberations on the
new rules, industry participants cannot be expected to design and fully initiate
implementation until there is sufficient understanding of the requirements.

The twelve month implementation period should be increased for particular rules as
warranted based on the demands of the rule itself and due consideration of other rules'
demands. While we note that Dodd-Frank generally requires a twelve month period for
implementation after required rules are finalized, we also note that the CFPB has ample
authority to extend this period as needed. MBA appreciated and supported the CFPB’s
decision in the RESPA-TILA integration rule to exempt some Dodd-Frank disclosures
from their mandatory effective date and we believe that appropriate statutory exception
and exemption authority also should be exercised as needed to establish reasonable
implementation periods.

MBA also urges CFPB to take into account the unique implementation challenges facing
smaller entities and larger entities. Rather than supporting different implementation
tracks for each, MBA recommends the selection of implementation dates that allow a
reasonable time for implementation and ultimately compliance for all covered

The mortgage system is interconnected. Smaller lenders must await systems
development by vendors as well as guidance from their larger lenders who provide
funding. Larger lenders must provide guidance to smaller correspondents and, at the
same time, address the challenges presented by modifying and reprogramming a host
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of different operating systems. Simply put, everyone should have an appropriate time to
comply that considers the range of needs and the system’s interdependency. Just as
importantly, consumers should not be put in a position where they are confused and
even possibly harmed by the differences presented by uneven compliance

In sum, the approach outlined here, in our view, would ensure reliable guidance as
quickly as possible while, at the same time, ensuring efficient and reasonably prompt
implementation. The alternative would be a hasty implementation that could
significantly constrict lending and competition as lenders struggle to operationalize rules
they hardly understand. To provide further detail regarding necessary timeframes for
implementation, we are attaching a description of the major steps involved and the
associated timeframes for those individual steps based on industry input.

Finally, MBA notes that other organizations have submitted proposals for staggered
implementation dates for each of the various rules. Staggered implementation of the
rules, if well managed, also can be a workable solution to lessen the enormous
compliance burden presented by the anticipated near simultaneous release of so many
significant mortgage rules to facilitate implementation. MBA supports these efforts but
also believes that providing time for questions, clarifications and dissemination of that
information followed by sufficient time for implementation for each rule is the best way to
reach our shared objective of ensuring minimal disruption to the market and consumer

Thank you for allowing us to express our views. We look forward to working with you
and the CFPB on these important issues during the coming year.

Should you have questions or wish to discuss any aspect of this further, please contact
me directly at or Ken Markison, MBA Associate Vice
President and Regulatory Counsel at


Pete Mills
Senior Vice President, Residential Policy and Member Services
Mortgage Bankers Association

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                       Attachment to MBA January 2, 2013 CFPB Letter

Major Steps Involved In Regulatory Implementation and the Associated Timeframes
Based on Industry Input:

1. Requirements drafting – (Required duration: 3-6 months)
     o Receipt of the final regulation and determination of what it means with
         regulatory feedback, what changes are required and how those changes
         equate to system and business process changes in all the various systems
         and within each business area.

   System design and coding - (Required duration: 3-6 months)
       o Coding and development of system changes and updates to any impacted
         standard work procedures.

        o Changes to the rules will be pervasive and will necessitate changes to all of
          the systems that support the loan process. Changes are required for
          example for user interfaces used by lenders to review and complete the
          forms, underlying programming logic and/or rules engines, supporting
          databases, the user interface where borrowers review and sign documents,
          data input exchanges, data output exchanges, document/data retention
          systems and compliance tracking systems.

   System testing – (Required duration: 2-3 months)
       o Testing the design and executing test scripts to ensure all systems are
         correctly connected and sharing data correctly.

   User acceptance testing – (Required duration: 2-3 months)
      o Quality assurance testing to ensure technical coding is in line and in
          compliance with all requirements of the regulation. During this step
          thousands of test loans which include all possible loan types and scenarios
          are processed under the new system requirements to ensure we are meeting
          the appropriate requirements and regulations in all circumstances.

   Sales and customer service training– (Required duration: 2-4 months)
       o Training all team members who will need to operate under the new rules.
          Large initiatives will require one trainer per 20 participants, along with 8 hours
          of training for each participating employee

    1717 Rhode Island Ave., NW, Suite 400 |    Washington, DC 20036   | |
                                              (202) 557-2700
   Education of external industry participants (Required duration 1-2 months, can
    happen in parallel to training)
       o Educating industry partners and service providers such as realtors, builders,
         correspondent lenders, providers of settlement services, settlement agents,
         and appraisers of new documents, requirements and processes.

   Business validation and code deployment– (Required duration: 1-2 months
    Formal signoff and acceptance of the system changes by the business and actual
    deployment of the systems changes throughout the various impacted systems.

Considering this process, we understand large national lenders will need at least 235-
250 full time resources to implement more complex rules such as Qualified Mortgage,
Mortgage Servicing Standards and the RESPA/TILA Integrated Disclosure regulation.

Smaller lenders will need to employ many external consultants, vendors and attorneys
to successfully implement the complex regulations. Like larger lenders implementation
will be staged internally with additional time spent awaiting the development of systems
by vendors and the requirements of larger aggregators.

Since these regulations will impact nearly every area within a lending organization of
any size and will also require significant changes by all lending partners and service

For a large national lender, the areas impacted would cover nearly the entire home
lending process and would include:

          Originations
          Documents and Forms
          Servicing
          Service Provider Management
          Capital Markets
          Finance
          Collateral Policy
          Secondary Markets Loan Delivery
          Credit Policy
          Legal
          Compliance
          Risk
          Data
          Reporting
          Internal Audit
          Technology

For smaller lenders most of these areas would need to be addressed with far less

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Lenders also will need to influence and direct system, process, ownership and timing
changes with vendors, settlement agents, builders and realtors. Many of the changes
that these partners and service providers will need to make must be determined before
lenders begin their own implementation efforts. It will also be important to provide a
reasonable amount of time so that lenders and their service providers can ensure
compliance with the new rules.

Finally, sufficient time will be needed for testing by vendors that provide various
components of systems. Lenders need to be certain everything works and ensure that
systems highlight issues that signify non-compliance.

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