Mortgage Lending Compliance Costs Up Almost 30% in 2014: Survey

New federal regulations have fueled significant year-over-year increases in compliance spending for all lenders, especially midsized firms, according to Fannie Mae's quarterly Mortgage Lender Sentiment Survey.

Nearly three-quarters of the senior mortgage executives who participated in the August survey said new rules and regulations issued by the Office of the Comptroller of the Currency, Consumer Finance Protection Bureau, Federal Reserve and Federal Deposit Insurance Corp. have had "significant" impact on their business because they are spending more on compliance this year compared with 2013.

The survey (representing feedback from 196 mortgage lenders) found that 84% of midsized lenders said their business was affected by higher compliance costs, compared to 73% of larger lenders and 62% of smaller lenders.

While compliance spending for all lenders surveyed was nearly 30% higher, midsized lenders reported a 50% increase indicating they are more likely to feel the impact than both larger and smaller lenders.

Higher compliance costs also are likely to force many lenders to outsource their post-closing loan quality control and mortgage servicing. And again, midsized lenders are more likely to outsource compliance services than smaller lenders.

Compliance risk remains the top concern for most lenders, but vulnerabilities also vary by company size, the survey found. For example, larger lenders are more concerned with operational risk while smaller lenders are more concerned with credit risk and interest rate risk.

Examples of regulation that is impacting compliance costs, notes Li-Ning Huang, senior manager, business strategy, economic and strategic research at Fannie Mae, who analyzed the survey data, are found in The Mortgage Banking booklet created by the Office of the Comptroller of the Currency, the enactment of the ability-to-repay/qualified mortgage standards and the Basel III capital requirements.

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