In “Sarbanes-Oxley and the Cost of Compliance: How will Mortgage and Consumer Lenders Respond?” financial services institutions were found to rely heavily on external auditors and consultants and have not yet shifted compliance processes, costs and IT spending away from quick-fix maintenance spending toward permanent, replicable business processes.

“It is unclear how large a role automation and IT spending can play in solving the problem, especially for smaller FSIs,” said Craig Focardi, TowerGroup research director in the Consumer Lending research service and author of the research.

Community banks could incur new costs to repair poor performance processes and systems identified in audits, the report said. “Community banks should focus resources for procedure review, system testing and internal process documentation on those business processes that either account for the largest share of company revenue or are mission critical,” Focardi said. “They should also consider developing compliance expertise among the members of their permanent internal staff because doing so may be more cost effective than hiring external consultants.”

The cost of compliance and process improvement could force smaller banks seller to a larger “compliance-efficient” competitor if it cannot keep pace with the new standards, Focardi noted.

“For certain smaller financial institutions, compliance may ultimately affect their overall business model,” Focardi said. “Sarbanes-Oxley increases concerns about risk within publicly-traded community banks. Compliance costs and process improvements can quickly absorb a large percentage of corporate profits within these types of compliance.”

TowerGroup said large institutions should view compliance IT as a strategic investment focused on improving efficiency, not just meeting the short-term compliance requirements of new or revised laws and regulations. Regulatory compliance creates both threats and opportunities for FSIs, Focardi said.

“Some small, publicly-traded FSIs may go private to avoid some regulatory burdens,” Focardi said. “These and other small FSIs are at risk of being acquired by large FSIs, which should develop compliance efficiency not only to improve internal operations but also to serve as a foundation for future growth.”
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MORPAC in 2004 became the newest member of the $1 million club, the rarified elite group of PACs that raised $1 million or more during the 2004 election cycle. The $1.05 raised by MORPAC in 2003-2004 dwarfed the amount raised in the previous election cycle ($446,993).

“I cannot tell you how exciting it is that MORPAC broke the 1 million dollar mark last cycle,” said MORPAC Chairman David Kittle, CMB. “As contributors you know, MORPAC is one of the best avenues for MBA members to ensure that the real estate financial industries voice is heard. MORPAC pools financial resources to help elect qualified federal candidates whose views and voting records reflect the interest of MBA and its members.”

At last week’s MBA National Policy Conference, MBA honored its member companies that contributed the most during the 2003-2004 election cycle. Honorees included:

• Bill Edwards, president and CEO of Mortgage Investors Corp., whose company raised $41,657;
• Regina Lowrie, MBA chairman-elect and president and CEO of Gateway Funding Diversified Mortgage ($26,198);
• John Courson, a past MBA chair and president and CEO of Central Pacific Mortgage ($17,500);
• Rob Story Jr, executive vice president and COO of Seattle Financial Group ($14,450); and
• Ray Reisert, CEO emeritus of CharterMAC ($10,350).

“Meeting the $1 million goal was an unprecedented success for MORPAC and shows that we, as an industry, have become one of the strongest voices on Capitol Hill,” said MBA Chairman Michael Petrie, CMB, and President and CEO Jonathan Kempner, in a joint letter sent earlier this year.

MORPAC has established a goal of $1.2 million for the 2005-2006 election cycle. As of April 25, MORPAC had raised more than $318,000.

( This article does not constitute a solicitation. For more information about MORPAC, go to www.mortgagebankers.org/MORPAC.)
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Ibrahim joins Radian from GreenPoint Mortgage, where he has served as president and CEO since 1999. He is a 27-year veteran of the banking and mortgage industries who worked previously at American Express, where he served as the head of international operations reengineering. Before American Express, Ibrahim was CEO and COO of Chemical Banking Corp.’s mortgage lending unit.

Ibrahim is a current member of the Mortgage Bankers Association’s Residential Board of Governors (RESBOG).

CBA Commercial LLC, Stamford Conn appointed Craig Knutson as executive vice president & CIO and Kent Nevins as executive vice president and general counsel.

Knutson will be responsible for strategic planning, as well as developing and implementing the information technology platform for CBA Commercial. Previously, he was president and COO for ARIASYS Inc. and also spent more than 20 years as a finance professional at Credit Suisse First Boston and Morgan Stanley & Co.

Nevins spent more than 20 years in private legal practice representing banks, mortgage lenders, investment bankers, public and private corporations and developers in real estate and capital markets transactions. Prior to joining CBA Commercial, Nevins was a partner of Pillsbury Winthrop LLP and its predecessor, Winthrop Stimson Putnam & Roberts.

Portellus Inc., Irvine, Calif., announced that David Vaughn and Joe Bowerbank have joined the company in key sales and marketing management positions. Both will be responsible for managing the company's recent expansion and upcoming release of several new lending automation products for the mortgage industry.

Vaughn joins Portellus as business development manager and brings more than 20 years of sales experience to the company. Previously, he held the same title at Commerce Velocity Inc., an Irvine, Calif.-based mortgage automation provider. Vaughn will be responsible for identifying new opportunities with lenders in need of Portellus' business rules management system (BRMS), loan origination system (LOS), automated underwriting system (AUS), secondary marketing module, broker portal solution and point-of-sale decisioning applications.

Bowerbank, who has more than 10 years of marketing management experience in the technology sector, joins the company as marketing director, a newly created position. Previously, he was marketing manager for Commerce Velocity. Bowerbank will be responsible for the company's positioning, messaging, communications, events marketing and public relations activities. His primary focus will be the implementation and execution of Portellus' corporate and product branding strategy in the mortgage banking industry.

The LOGS Network, Northbrook, Ill., appointed David Van Ess as its executive vice president of national operations. In this newly created position, Van Ess will oversee national operations, regional managers and all member law offices as well as assist with client relations.

Previously, Van Ess was the Florida operations manager for Codilis & Stawiarski, P.A. where he was responsible for managing all day-to-day foreclosure, bankruptcy, title, eviction and REO closing services. He was also a former LOGS Attorney Liaison for Fleet Mortgage, now Washington Mutual, where he was responsible for directing and ensuring regulatory compliance of the attorney network with government, investor and insurer requirements.

American Mortgage Network, San Diego, announced the promotion of Brad Urczyk to vice president and regional manager for AmNet’s Overland Park, Kan., regional center. The region serves mortgage brokers in Kansas, Missouri and Nebraska.

Urczyk has 12 years of wholesale lending experience. He joined AmNet in 2004 as producing branch manager and was previously an account manager with First Magnus Financial Corp., NovaStar Financial, Home Mortgage, Inc., and First Horizon Mortgage. 

Deutsche Bank, New York, announced that Shaun Mays and Felicity Gates will serve as global head of infrastructure investments and chief investment officer, respectively, for the bank’s expanded Infrastructure Investments business unit. The business will be branded RREEF Infrastructure Investments and will sit within RREEF/DB Real Estate, the real estate investment management group of Deutsche Asset Management.

Previously an Australian-based operation, Infrastructure Investments will become a New York-based global business with an additional hub in London, while the Australian hub will be expanded to cover the whole of the Asia Pacific region. Mays served previously as DeAM’s head of Australia.

RBC Mortgage, Houston announced the opening of the new Homeland Lending branch in Galt, Calif., serving the Sacramento County area. Tania Bohn and Terrie Nevis are co-managers of the branch, overseeing loan origination and operations.
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The properties, Sunbury Village in Bangor, Maine; Oakwood Hills near Eau Claire, Wis., and Jackson Meadow in Jackson, Tenn., are owned by entities related to Holiday Retirement Corp., the world’s largest owner/operator of retirement housing.

Red Mortgage Capital provided a $8.18 million Fannie Mae DUS mortgage loan for Sunbury Village; a $6.45 million Fannie Mae DUS loan for Jackson Meadow; and a $8.77 million interim bridge loan for Oakwood Hills. All three loans refinanced existing debt; the Fannie Mae loans carry a 20-year term and a 20-year amortization schedule.

Sunbury Village was built in 2001 and features 115 independent living facility units. Jackson Meadow, built in 1996, features 113 independent living units. Oakwood Hills, a newly constructed facility, features 114 independent living units and received. All three properties include meals, recreational activities and specially designed units for emergencies.

Red Mortgage Capital has funded five transactions with Holiday Retirement Corp. thus far, totaling $36 million.
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Through this distinctive program, MBA addresses the future of the industry and offers sophisticated advice on leadership skills. Thought-provoking conference sessions provide critical information, as well as significant value, to take back with you for your business.

This year’s conference features the following keynote addresses:

• Barry Nalebuff, professor of Economics and Management at the  Yale School of Management, presents "Why Not? How to Use Everyday Ingenuity to Solve Problems Big and Small." He is an acclaimed educator and author on teaching people how to solve problems, think strategically and ask questions. Nalebuff is a Forbes columnist and Marketplace commentator, as well as the co-founder and chairman of Honest Tea, one of Inc. Magazine's fastest growing companies in America. He has been a consultant to a host of successful companies, including: American Express, BP, Bell Atlantic, Citibank, Corning, GE, McKinsey and Warner-Lambert.

• Baseball legend Jim Bouton believes that to achieve goals, you need to think like an athlete and focus on the process. This means getting into the fun of the enterprise, the challenge of long odds, the satisfaction in details, the thrill of extraordinary effort and the joy of work. Bouton shares his experiences as a winning New York Yankee and all-star in the 1960s, a comeback kid in the major leagues after an eight-year retirement, best-selling author and sportscaster.

• Gary Orren, professor of Public Policy and Management at the John F. Kennedy School of Government at Harvard University, presents the “Principles of Persuasion for Executives.” He believes that the ability to communicate persuasively lies at the heart of management and the core of leadership, whether the goal is to convince one person face-to-face, or to sway the public at large. This interactive session highlights proven principles of effective persuasion drawn from social psychology and other behavioral sciences. As a leading public opinion and political analyst, Orren has served as an advisor in local, state and federal national election campaigns and has taught at Harvard for 34 years.

• Doug Duncan provides his always perceptive and entertaining insight into the economy, the mortgage market and lender performance. As MBA's senior vice president of research and business development, and chief economist, he oversees the Research, Education, Industry Technology and Business Development departments.

Complementing the educational focus of the meeting are networking opportunities and a spouse/guest program. This year's conference is incorporating a two-day golf tournament that will include handicaps and flight winners. The first Presidents Conference Cups will be presented. Award-winning comedian Eddie Brill (Comedy Central and David Letterman) performs on June 7.

This event is exclusively for Chairmen, Presidents, Owners, Principals, CEOs and COOs of regular MBA member firms, members of MBA's Board of Directors and Board of Governors and Premier Associate members.

Program registrants are responsible for making their own hotel reservations. Listed on the National Register of Historic Places, The Breakers has received the AAA Five Diamond Award. Amenities include two 18-hole championship golf courses, a spa, tennis center and more. Contact The Breakers by phone or fax and state that you will be attending MBA's Presidents Conference. Be sure to make your reservations before May 13. The cut-off date does not ensure availability of rooms. If rooms are available until May 13, you will receive the discounted hotel rate provided below. After May 13, reservations will be made on a space-availability basis only, and you will be charged the regular hotel rate.

For more information, go to the Conference Web site, http://events.mortgagebankers.org/presidents2005/default.html
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• Michael Detwiler, CEO of Mortgage Cadence, Denver, identifies five key drivers that are prompting companies to build new tools and partner with technology firms;
• MBA’s Daniel Szparaga outlines the benefits of an alliance agreement between the Mortgage Industry Standards Maintenance Organization (MISMO) and the Commercial Mortgage Securities Association (CMSA);
• Nearly 90 percent of companies still rely on spreadsheets, which, according to a study by Cognos Inc. and Ventana Research, begs the question: “why?”
• Outsourcing may be appropriate for some functions, but many companies that outsourced IT and business processes are bringing those operations back in-house.

MBA Tech NewsLink is the newest publication in the NewsLink family, targeting technology issues and trends within the mortgage industry. MBA Tech NewsLink is a service to MBA members; to subscribe to MBA Tech NewsLink, visit http://www.mortgagebankers.org/technewslink/
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Most data won't be made public until September. But that hasn't stopped some consumer groups from making allegations that the data prove that some lenders engage in discriminatory practices. Those allegations have drawn rebuke, notably from Federal Reserve Chairman Alan Greenspan, who correctly noted that HMDA data do not take into account the key reason behind a lender's decision to structure a loan-the credit score.

But the challenge remains for lenders from a public relations standpoint. "Banks are in a defensive position, because the credit scoring is not data that was necessarily disclosed," said Raffi Festjekian, president of PCi, Boston. "Banks have to demonstrate that you can make high-priced loans based on credit information. This is not a pricing decision; it's a business decision."

All of PCi's clients are facing pressure from government and community groups on HMDA data that have begun to hit the market. Todd Cooper, PCi's chief product manager, said clients are looking for ways to specifically address the risks and articulate answers to the questions that will arise from the data.

"It is particularly important for lenders to understand how the public will view their HMDA data and highlight potential risks that require further exploration so that explanations regarding public data from the institution are consistent," Cooper said. "It is crucial that HMDA data be accurate. Without strong, supportable data, even quality analysis will generate poor results."

PCi suggests lenders begin with scoping reports to understand what others will find and then move into the more detailed analysis required to protect the institution from specific allegations.
 
"Regulatory agencies are recommending that lenders also review non-reported rate spreads to further understand their pricing models on protected classes," Festjekian said. "No matter what level of detail lenders are seeking, or what the lender's available resources are, HMDA pricing analysis toolsets and services are available to meet the institution's specific needs."

Scoping reports can break down analysis of HMDA data to individual geographies, such as state, metropolitan statistical area, county, even neighborhood. In areas with a particularly high-risk profile, statistically enhanced analyses can provide more sophistication, such as decisioning factors in pricing and funding loans, which can "contextualize" the loan's justification.

"It's not going to change the message, but it does give you hard evidence to support you loan decisioning," Cooper said.

Cooper said lenders should examine pricing information for all loans, not just those that exceed the spread. "Pricing information via HMDA are just those that exceed the spread. But almost all Department of Justice investigations involving disparate pricing involve policies and loans that operate beneath the spread. So all loans are important, not just those exceeding the spread," he said.

This is critical for larger lenders especially, Festjekian said, because community groups are going to focus on their efforts. "The goal is to do an analysis that supports credit scoring as the primary reason for a loan decision," he said. "There is a lot of information that you can conjugate to support the banks, so you can say, 'it's more than the rate spread.'"

"You want to create a statistically defendable analysis, with data that are in line with patterns that show no disparity," Cooper said. "You need to know the impact [of your data on] specific neighborhoods. That is the thrust of the community groups. They are looking there and you have to know what to look for."
 
"The longer you take to respond, the worse it gets," Festjekian said. "If you don't take an immediate response, but you have data that you can share with these groups and the Fed, you're doing yourself a disservice."
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