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Expanded Regulation Hurts Independent Lenders Most

Mortgage News

DALLAS — Mortgage rules and regulations have been emerging out of the nation’s capitol at a stellar pace, and the burden weighs most heavily on small and mid-sized home lenders. At a convention this week, the mortgage industry’s chief lobbyist addressed the obstacles to growth and how to coordinate a solution.

Independent mortgage bankers are battling an overly burdensome regulatory atmosphere.

In addition to numerous state and federal regulatory exams, the government has basically set up shop at many small lenders.

The burden of new regulations and the cost of potential litigation are harder for independent mortgage bankers to absorb than for their larger rivals, according to prepared remarks by Mortgage Bankers Association President and Chief Executive Officer David H. Stevens for the 2012 Independent Mortgage Bankers Conference being held from Wednesday until Friday at the Fairmount Hotel in Dallas.

During a six-week period in July and August, six rulemakings were proposed. These included new Real Estate Settlement Procedures Act and Truth in Lending Act disclosures, standards for loan officer compensation and qualification, and national servicing standards. The rulemakings also included appraisal disclosures, requirements for appraisals on high-cost mortgages and other rules for high-cost loans under the Home Owners Equity Protection Act.

Stevens explained that 3,000 pages of rulemakings have been generated compared to 600 pages generated from the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

In addition, lenders are still dealing with FHA reform, disparate impact rules from the Department of Housing and Urban Development, Basel III Capital rules and risk retention-qualified residential mortgage rules.

Mortgage Daily photo of David H. Stevens
by Holly Himelright

Stevens, who noted that attendance at the event is “incredible,” warned that the slightest change to the mortgage market can impact the overall economy.

The MBA chief said that many CEOs of mortgage firms have told him that uncertainty and risk are still the biggest factors holding back the market. Litigation risk and the potential for regulatory enforcements have made quality control, risk management and regulatory compliance bigger priorities than more originations.

The current environment has tipped the market in favor of mega-lenders that benefit from economies of scale.

“The marketplace is off balance,” Stevens said. “We must restore a competitive and efficient mortgage marketplace where all have the opportunity for growth. To do this, policymakers must be aware of the impact of the litany of rules and regulations causing confusion in our industry and the mortgage marketplace.”

Stevens cited how HUD’s disparate impact rule, which requires lender to ensure that no one segment of the population is favored over another, conflicts with the Consumer Financial Protection Bureau’s ability-to-pay qualified mortgage rules, which makes the credit box so tight that lenders will have no choice but to lend to borrowers with higher incomes.

He repeated the group’s calls for a “traffic cop” housing policy coordinator to break through the dysfunction of Washington, D.C., policymaking and ensure regulations compliment each other.

Also creating obstacles is the lack of transparency with policymaking at Fannie Mae and Freddie Mac. He says that the pair of government-controlled companies are no longer private entities, finance nearly two thirds of the residential market and “have the ability to rock our world with a single policy change.”

But despite all the obstacles facing small and mid-sized mortgage firms, there is light at the end of the tunnel.

“Our industry has the potential for a very bright future. We have record low rates, home prices are stabilizing, consumer sentiment is rising and the affordability index is near its peak,” Stevens stated. “In addition, an enormous opportunity lies ahead with the Echo Boom Generation, who are 80 million strong and just starting to turn 30, wanting to buy homes to raise their families.”

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