The argument whether enhanced regulatory oversight by the Consumer Financial Protection Bureau (CFPB) has a significant impact on the supply of credit or on bank-risk taking is a critical topic. With regulatory efforts strengthening across the street, one might assume that the non-agency lending business has been negatively impacted. However, studies from reports showcase that CFPB oversight has at most a small negative effect on overall mortgage lending. According to the research done, an increase in regulatory effort creates an environment where banks decrease origination for riskier loans. That might be the case for riskier loans, but non-qualified mortgage loans are not necessarily considered risky.
The non-qualified mortgage loans of today are nothing like the subprime loans of yesterday. Even with non-QM loans, a lender must follow all requirements and validate the borrower’s “ability-to-repay”. This would mean vetting all the applicants with employment, income and asset verification similar to that of agency loans. Non-QM loans are not as risky because lenders offset some of the risk by charging higher rates and fees as long as they can demonstrate the consumer’s “ability-to-repay” debt. Jumbo mortgages are also affected by an increase in regulatory burden because they fall outside of the QM rule standards and thus don’t fall under the safe harbor, making lenders reluctant to originate them. After examining the regressions, applicant denials and graphical evidence from reports, it is clearly evident that the CFPB oversight has affected the composition and riskiness of bank lending. Keith Knutsson suggests "The 'pendulum' had swayed too far to the radical side of regulation. This has left a gap in the market where worthy loans have been widely ignored by the institutions. Thus proving that heavy regulations have been more of a burden, than a benefit, in the non-QM lending business. This neglect in the industry has created an opportunity for institutions to capitalize on what would normally be healthy loans."
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Recent research suggests that up to 40 percent of finance activities are able to be fully automated. Functions such as cash disbursement, revenue management, and general accounting and operations are tasks under such review. These abilities would help simplify core internal transactions, standardize reporting structures, and help the hierarchy in terms of efficiency.
In more specifics, groups are already exploring a process called RPA, or robotic process automation, which falls under the category of automation software that performs redundant tasks on a timed basis and ensures. A tool such as RPA has advanced to the point they are no longer utilized in only a specific business activity but throughout multiple areas of the business. Unfortunately, the process of implementing such tools is not always as easy. Companies have to work on successfully implementing RPA at scale, and the ones that have done so had to redesign their operating models and their processes. Finance departments have to receive training on RPA technology to avoid overflow to IT departments. In the corporate world, insiders estimate the overall utility of tools such as RPA to increase overall productivity within the finance function in group by about 20 percent, given time- and cost-savings associated with the deployment of RPA in this pilot area as well as several others. Keith Knutsson of Integrale Advisors commented, “it remains important to specialize new technological abilities we develop into specific departments and functions. In the world of finance, this, in my opinion, is very much needed.” |
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October 2018
CategoriesAll Investing Keith Knutsson Real Estate Real Estate Investing |