In addition to recently implemented requirements for appraiser independence, loan originator registration and loan originator compensation — as many as 20 new mortgage lending requirements are in the regulatory pipeline.
The grim assessment came in a speech Thursday by Acting Comptroller of the Currency John Walsh before the Housing Policy Council of the Financial Services Roundtable, according to a copy of his prepared remarks.
Among the reasons that it will likely be another couple of years before housing markets normalize is a tighter credit outlook that is being fed by uncertainty about the foreclosure process and the future of securitizations.
“The drumbeat of criticism against the industry has now gone on for years, from criticism of its slow reaction to the housing downturn in general, to its handling of mortgage modifications, and now to the complete mishandling of the foreclosure process,” Walsh stated. “That routine processing of bank files and legal documents could deteriorate into safety and soundness failures requiring formal enforcement orders is simply astounding.”
He warned that the new Basel III framework could lead to a reduction in the book value of servicing rights, an increase in capital requirements and a decline in the attractiveness of third-party servicing.
It is not yet clear how the new treatment of servicing rights will impact the price and availability of mortgage credit.
He said the same uncertainty exists about the impact of risk retention.
Walsh highlighted new registration requirements for loan originators that went into effect in October, appraisal independence requirements that became effective on April 1 and the loan originator compensation rule that also went live on April 1.
“As if these fundamental economic, performance and policy challenges were not enough for the industry to contend with, the regulatory landscape for mortgage lenders is also changing in profound ways,” the OCC chief continued. “While Dodd-Frank will change the way that all financial services companies operate, the changes are particularly dramatic for mortgage lenders.
“There are 15 to 20 new mortgage lending requirements in the regulatory pipeline, and their impact on the mortgage and servicing businesses will be more tsunami than simple wave.”
On top of that are new rules to be established after the Consumer Financial Protection Bureau goes live in July and recent settlements between federal banking regulators and 14 of the largest mortgage servicers.
“It may be that some providers will decide that the high-volume, low-margin, technology-dependent model no longer works financially,” Walsh said.
While it may be too early to argue that originators or servicers are exiting the business, it is clear that the regulatory burden has increased and profit opportunities are constrained for servicers.
Walsh said much of the criticism surrounding the 20 percent downpayment required for a qualified residential mortgage is unfounded since it only applies if risk retention is waived.
