The first 100 days of President Barack Obama’s administration have been marked by much pressure to address the financial crisis, help the U.S. economy, and establish regulatory reform. While substantial regulatory changes have already been made, more is clearly on the way -- lawmakers are in the process of debating additional, more aggressive legislation in an effort to protect consumers. Compliance experts at Wolters Kluwer Financial Services say that the developments in the first 100 days of the new presidency have already changed the mood within the financial services industry in general, and mortgage banking in particular.
“Regulators are feeling much more empowered than they were during the previous administration,” said Edward Kramer, executive vice president for regulatory programs at Wolters Kluwer Financial Services. “More stringent regulatory exams, a rising number of enforcement actions and the growing number of financial institution closings during the first quarter of this year are evidence of that.”
Kramer said he believes the mortgage reform bill Congress debated last week could be the beginning of major financial services regulatory reform. The bill would fundamentally change the mortgage lending market, placing tighter restrictions on non-prime mortgage lending and lender compensation -- and, perhaps more importantly, it would require lenders establish what the bill calls a “duty of care” in proving borrowers could repay a loan or that refinancing gave them a net tangible benefit.
“The proposed mortgage reform bill combined with numerous regulatory changes already scheduled to take effect this year could likely put financial institutions in a significant crunch,” said Amy Downey, a senior regulatory consultant at the firm. “These changes are very different from those of previous years that required a simple update to a document or disclosure. Instead, they will require institutions to change the way they do business. Many institutions are just starting to figure this out and scrambling to adapt.”
The securities industry has also seen a number of issues discussed during the first 100 days of the new presidential administration, including the potential regulation and registration of hedge funds, changes to credit rating agencies, and harmonizing rules between investment advisors and broker-dealers. Legislation concerning some of these issues has been introduced, and more will likely come.
“I think it’s clear that we are going to see more regulation in the coming months, as well as the regulators working to flex their muscles and extend their influence,” said David Thetford, securities compliance principal analyst at Wolters Kluwer Financial Services. “The SEC has already highlighted a number of areas where it would like to see reform, and has indicated it would like to increase the size of its staff. I’m anticipating we’ll also see similar activity from other regulators, including the Financial Industry Regulatory Authority (FINRA).”
Thetford notes that anticipation of a tightening regulatory net has created a level of suspense within the financial services industry, as the industry as a whole prepares itself for the growing pains associated with regulatory change. In addition to assessing their compliance programs in anticipation of regulatory changes, financial services firms are also being forced to evaluate the types of products they offer.
Jason Marx, vice president and general manager of the mortgage group at Wolters Kluwer Financial Services, says mortgage companies continued to expand their FHA lending programs at a fast pace to keep up with market demand. He expects lenders to increase their activities in reaction to currently lower rates, refinance initiatives and loan modification programs throughout the rest of the year as they take advantage of the Treasury’s new Making Home Affordable Program.
“Lenders are very interested in becoming involved with the program,” said Marx. “They realize that by helping distressed borrowers refinance or modify their loans, they can assist those borrowers that have the intent and ability to make regular payments and stay in their home.”
In HW's view, with the market for more traditional purchase originations remaining weak, it should come as little surprise to see originators turning more of their focus to "distressed" refis wherever the government enables such activity.Write to Paul Jackson at email@example.com.