Opinion: Streamline The CSBS State Exam System


As consumers and industry professionals weather a historically difficult housing market, it is more important than ever to foster a mortgage lending environment that supports the continued existence and growth of small lenders. The success of small lenders is not only in the best interest of consumers, but aligns with the goals of Congress and regulators.

In 2020, The Conference of State Bank Supervisors launched the State Examination System, which was designed for state regulators to supervise and monitor lenders. While the system is well-intentioned, in practice, these often-overlapping state exams have created proportionately larger costs and time burdens for smaller non-bank lenders (independent mortgage banks or IMBs) that must have licenses in every state they do business in.  Larger lenders – by virtue of their larger books of business – can more readily amortize the fixed costs of compliance and legal staff to assist with these many exams.  Smaller lenders don’t have this same ability.

The COVID pandemic caused further delays and disruptions to on-site and annual State Exams for lenders. Some lenders have been required to complete as many as ten simultaneous examinations to fulfill state requirements. IMBs being required to submit the same documentation – application logs, policies and procedures, and management questionnaires – for various state boards serves no real purpose and it hinders their ability to efficiently originate and service loans.

CHLA recently wrote to CSBS with a proposed enhancement to the state-based exam system, an approach we call the Uniform Annual Exam. The launch of a UAE would negate the need for lenders to complete state exams in each state that they operate in and would focus on collecting lender data not likely to change between states including corporate financials, company policies and procedures, and multi-state or national marketing materials. The implementation of a national exam system would drastically reduce time spent by small IMBs on regulatory compliance, removing the need to submit the same documentation to multiple state agencies while creating no additional risk for the consumer.

With the implementation of a UAE, IMBs could easily submit application logs, management questionnaire responses, marketing materials, and policy samples to a national database. Each state regulatory board would still receive the necessary information to examine individual IMBs without creating unnecessary work for lenders. If further investigation into a specific lender is needed, a formal inquiry could be launched by state regulators using a process similar to the NMLS Licensing process.

CHLA has long sought to streamline the origination process and improve the consumer experience through the development of innovative measures to guide the industry’s growth. This year, CHLA released its Consumer Bill of Rights, and delivered a report on regulatory creep, in the aftermath of the Silicon Valley Bank failure – identifying policies to lower borrower costs while bolstering homeownership access for low to moderate-income borrowers and first-time buyers.

We’ve long appreciated the function of the Conference of State Bank Supervisors and look forward to making progress here. Working together, state regulators and IMBs can find solutions reducing the amount of time spent on duplicative compliance while strengthening the financial landscape, encouraging innovation, and upholding the principles of consumer choice, affordability, and accessibility in the industry.

Small lenders will thrive, state regulation will remain vigilant and robust. And consumers will win.

Rob Zimmer is head of External Affairs for the Community Home Lenders of America.

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