There is little doubt that there are more regulations foisted upon the mortgage industry in the wake of the housing crisis.
From new rules surrounding the amount of information lenders are required to provide under the Home Mortgage Disclosure Act, to the new requirements for lenders under the Consumer Financial Protection Bureau’s new mortgage disclosure rules for consumers, to the national mortgage servicing rules, to the Ability-to-Repay rule and the Qualified Mortgage rule, and countless others, lenders are certainly under more of a microscope than ever before.
The impact of all of those rules is still being debated, as facts and opinions repeatedly collide on whether the current regulatory environment is stifling mortgage lending or supporting it.
Count Tim Rood, the chairman of The Collingwood Group, among those who think the regulatory environment is smothering mortgage lenders.
In a note posted Friday on The Collingwood Group’s Voice of Housing blog, Rood, the former director and principal of Fannie Mae’s eBusiness Division, went so far as to use a stunning term to describe the current lending environment.
“Regulatory Jihad on lenders is weighing on banks and others,” Rood, who co-founded The Collingwood Group, a financial advisory firm, wrote. Jihad is defined by Merriam-Webster most simply as "a war fought by Muslims to defend or spread their beliefs."
“Increased regulation, under the guise of protecting borrowers is actually hurting prospective homebuyers from getting a loan,” Rood said. “Regulatory requirements and housing finance reforms are clearly impacting the industry’s willingness to deploy risk capital in the mortgage space.”
Use of the term ‘Jihad’ aside, Rood isn’t wrong that the rules that lenders must adhere to are far more stringent than they were before the crisis.
And the impact of those rules is already chasing some lenders from the mortgage business entirely, as evidenced by the abrupt closure of W.J. Bradley Mortgage Capital in March, for example.
But are lenders really suffering that much? The answer appears complicated.
A recent report from Equifax showed that mortgage lending actually grew by a significant amount in 2015.
According to the Equifax National Consumer Credit Trends Report for March 2016, the total balance of new first mortgages originated in 2015 was $1.82 trillion, which represents a 42.9% increase over 2014’s total of $1.27 trillion.
In terms of the total number of new first mortgages originated, 2015 also saw a sharp increase from 2014, albeit not quite as much as the total dollar amount.
According to Equifax’s report, there were 7.71 million new first mortgages originated in 2015, an increase of 31.6% over 2014’s total of 5.86 million first mortgages originated.
So there were more mortgages originated in 2015 than 2014, and for more money as well, as the average dollar amount of new first mortgages also rose in 2015, from $217,390 in 2014 to $236,057.
But mortgage credit availability is still incredibly low by historical standards, as shown in the recent Mortgage Credit Availability Index from the Mortgage Bankers Association.
And lenders are undoubtedly concerned about their ability to comply with the various regulations required of them, especially as the CFPB and other agencies are increasing their enforcement actions against the mortgage industry.
The CFPB, for its part, doesn’t view itself as an “enemy” of the financial industry, nor does it want the industry to view it in that way, with CFPB Director Richard Cordray recently telling a group of credit unions, ““It is time for credit unions, and CUNA, to wake up and smell the coffee: the Consumer Financial Protection Bureau is not your enemy; on the contrary, it is an important new friend and ally.”
But lenders don’t feel that way, as evidenced by Rood’s extreme comparison.
So, are regulators really waging a war against lenders? The answer is complicated, at best. And it’s clearly leaving many in the industry anxious, apprehensive, and maybe even scared.
Let us know what you think about Rood’s comments and the current regulatory environment in the comments below.
