Survey Shows Lenders Believe New Regulations Have Had "Significant" Impact on Their Business

The mortgage industry has faced several significant regulatory changes in recent years. The Office of the Comptroller of the Currency, the Consumer Finance Protection Bureau, the Federal Reserve, and the Federal Deposit Insurance Corporation all have issued new rules and regulations that affect the mortgage industry.¹

Given the large amount of discussion in the mortgage industry about increased regulations, Fannie Mae’s Economic and Strategic Research Group surveyed senior mortgage executives in August 2014 via its quarterly Mortgage Lender Sentiment Survey² to understand how lenders view the impact of new regulations on their business practices.

The survey results show that most lenders believe new regulations have had “significant” impact on their business. In particular, lenders reported a nearly 30 percent 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 (QC) review and servicing. Moreover, compliance risk is reported by most lenders as their top area of focus this year. Specific survey findings include:

• 72 percent 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 percent of larger lenders reporting "significant" impact.”
• 72 percent of lenders reported spending more on compliance in 2014 than in 2013. Across all lenders surveyed, institutions reported a median increase of nearly 30 percent in compliance spending. Mid-sized lenders reported the largest increase of 50 percent, on average.
• 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.
• 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.

To learn more about this analysis, read our Fannie Mae Q3 2014 Mortgage Lender Sentiment Survey Topic Analysis.

¹Examples include the Mortgage Banking booklet (https://www.occ.gov/publications/publications-by-type/comptrollers-handbook/a-mb.pdf), the Ability To Repay/Qualified Mortgage standards (https://www.consumerfinance.gov/regulations/ability-to-repay-and-qualified-mortgage-standards-under-the-truth-in-lending-act-regulation-z/#rule) and the Basel III capital requirements (https://www.federalreserve.gov/bankinforeg/basel/USImplementation.htm or https://www.fdic.gov/news/board/2014/2014-04-08_notice_dis_c_fr.pdf)

² For details about this industry survey, such as methodology, questionnaires, research report, please see the Mortgage Lender Sentiment Survey web page on fanniemae.com, https://www.fanniemae.com/portal/research-insights/surveys/mortgage-lender-sentiment-survey.html

Li-Ning Huang, Ph.D.
Senior Manager, Business Strategy
Economic & Strategic Research

October 15, 2014

The author thanks Doug Duncan, Renee Schultz, Tom Seidenstein, Gerry Flood, Steve Deggendorf, Richard Koss, Steve Solomon, and David Keil for valuable comments in the creation of this commentary and the design of the topic analysis questions. Of course, all errors and omissions remain the responsibility of the author.

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