Approximately three-quarters of mortgage industry professionals believe that today’s regulatory environment prevents them from lending to creditworthy borrowers, according to a survey released by Washington, D.C.-based business advisory firm The Collingwood Group on Thursday.
In Collingwood’s October 2015 Mortgage Industry Outlook Report, the firm posed the question, “Is today’s regulatory environment preventing you from lending to people you think can afford and deserve a mortgage?” to a group of mortgage industry professionals that included mortgage lenders or originators, vendors or service providers, the secondary market, mortgage industry trade association/advisors/consultants/attorneys, servicers, and those in government. About 80 percent of the professionals surveyed were originators or lenders.
About 75 percent of the group surveyed said the current regulatory environment is indeed preventing them from lending to consumers who can afford and deserve a mortgage, while 25 percent said today’s regulatory environment does not prevent such lending. One anonymous respondent said, “We punish the whole for the actions of a few.” Yet another anonymous respondent said, “I believe there are many loans we do not do now that we would have closed in the past that were fantastic loans with common sense underwriting.”
The topic of whether or not the mortgage industry has been overregulated in response to the 2008 crisis has been the subject of much debate among lawmakers, mortgage industry professionals, and other industry stakeholders. On Monday, Comptroller of the Currency Thomas Curry announced in an address in Chicago that the OCC was advancing three specific legislative proposals aimed at eliminating regulatory burden on community banks and financial institutions. On Wednesday, the House Financial Institutions and Consumer Credit Subcommittee discussed a series of bills aimed at providing regulatory relief for Main Street. Several of those bills have received bipartisan support.
“Imagine how well this engine of the economy could do if government just kept its hands off.”
One of those bills, H.R. 3340, the Financial Stability Oversight Council (FSOC) Reform Act, introduced by Rep. Tom Emmer (R-Minnesota), is aimed at reforming the FSOC, which was created in 2010 in response to the crisis. The new bill would enhance congressional oversight of an organization that has the power to force new regulations on financial institutions. Emmer stated that, “American businesses and consumers are frustrated by an out of control federal bureaucracy. By restoring a transparent, constitutional process, Congress would have the opportunity to verify that the Financial Stability Oversight Council is performing its duties and not harming access capital for families and businesses.”
The Collingwood survey said that the vast majority of survey respondents were angry or frustrated that the manufacturing process has become more important that the substance of loans. Due to confusion surrounding new underwriting rules and fear of unequal enforcement, underwriters are forced to be more conservative.
“It’s amazing that the housing market has outpaced much of the economy despite these regulations;” Collingwood Group Chairman Tim Rood said. “Imagine how well this engine of the economy could do if government just kept its hands off.”
In response to another question from the survey, “What is the top issue that is negatively affecting your origination volume?”, 72 percent cited regulation. Survey respondents said that regulation from the Consumer Financial Protection Bureau (CFPB), another agency created in response to the crisis, was a source of negative influence. The consensus was that while CFPB’s regulations are designed to protect consumers, the new regulations have brought on new compliance costs that have resulted in higher rates and fees for borrowers—making those regulations more harmful than helpful to borrowers no matter how well-intended.
In a public address earlier this week, CFPB Director Richard Cordray defended his agency's actions against those who say the industry is overregulated.
“When we put those new regulations in place, some were critical of our work,” Cordray said. “For example, the 'Ability to Repay' rule requires lenders to make sure that borrowers actually have the ability to repay their loans before extending them a mortgage. Some enjoyed describing this rule, which was also known as the 'Qualified Mortgage' or QM rule, as the 'Quitting Mortgages' rule. They made scary predictions that our rules would cause mortgage costs to double and would cut the volume in half. They said that no one would make any non-QM loans because the risk of litigation was too great. They lamented that our rules would lead to the demise of community banks and credit unions, which would have to withdraw from the mortgage market altogether. We all recognize that change is hard, but we never believed any of this unsupported hyperbole.”
Click here to see the Collingwood Group's entire report.