MortgageRegulatory

Fannie Mae: 4 ways new regulation deeply impacts mortgage lending

Here's why new mortgages are so hard to come by

The government-sponsored enterprise Fannie Mae posted another great blog post this morning.

Senior manager of economic and strategic research, Li-Ning Huang proffers something most of us in the mortgage financier business felt for some time; new regulations are deeply impacting mortgage lending.

The Consumer Financial Protection Bureau is not alone in passing new rules, as we all know. The Federal Reserve and the Federal Deposit Insurance Corp. also have new rules, for example.

In the quarterly Mortgage Lender Sentiment Survey, she writes:

“Most lenders believe new regulations have had “significant” impact on their business. In particular, lenders reported a nearly 30% median increase in compliance costs compared with 2013. Lenders also reported increased reliance on outsourcing due to increased regulations and associated costs, particularly in relation to post-closing Quality Control review and servicing. Moreover, compliance risk is reported by most lenders as their top area of focus this year”

Thanks to Fannie Mae and Huang for helping to quantify the pain many lenders continue to feel, "this year."  With knowledge, in time, let’s hope things get better next year.

Here are four specific findings proving the above point, according to the survey results.

1. The impact on mortgage lending is huge

72% of the lenders surveyed say the new regulations have had “significant” impact on their business. Mid-sized lenders (84%) are more likely than smaller lenders (62%) to report "significant" impact, with 73% of larger lenders reporting "significant" impact.

2. Ahem. The COST is even larger

72% of lenders reported spending more on compliance in 2014 than in 2013. Across all lenders surveyed, institutions reported a median increase of nearly 30% in compliance spending. Mid-sized lenders reported the largest increase of 50%, on average.

3. Outsourcing is pricey and commonplace

Post-closing QC review and servicing are the business functions most commonly reported as being outsourced as a result of increased regulations and associated costs. In addition, mid-sized lenders are more likely than smaller lenders to outsource compliance/legal functions.

4. Mortgage lenders face three types of risk now

Compliance risk is reported as the top area of focus by most lenders. In addition, larger lenders are more concerned with operational risk while smaller lenders are more concerned with credit risk and interest rate risk.

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