Loan Quality, Compliance Costs Worry Most Mortgage Lenders

A recent survey shows a very large number of mortgage lenders worry about loan quality and Truth in Lending Act and Real Estate Settlement Procedures Act Integrated Disclosure Rule compliance costs.

The TILA-RESPA rule will become effective on Aug. 1, 2015. And as the deadline approaches at least 95% of the 100 mortgage executives at the Mortgage Bankers Association Annual Convention in Las Vegas who participated in a survey conducted by the Capsilon Corp. said they are "somewhat" or "very concerned" about loan quality.

A large majority, 84%, said their companies currently are preparing to meet the TILA-RESPA requirements, compared to 7% who have not yet started the process, and 9% who did not know.

Up to 80% said their renewed focus on loan quality and regulatory compliance requirements already have increased loan production costs compared to 2013. To be able to comply 80% of respondents also said they plan to spend somewhat or significantly more in 2015 than they did in 2014 on compliance-related activities such as loan production system updates.

And these findings are consistent with recent MBA reports showing loan production expenses increased 19% from a year earlier, to roughly $6,900 per loan in the second quarter of 2014, the report notes.

Opinions about the best way to handle loan quality control functions, however, differ significantly as 49% said they keep QC in house, 15% outsource and 36% use a combination of both.

The findings confirm "lenders are struggling with increasing costs as they contend with a myriad of new regulations that require a heightened focus on data integrity and loan quality," and an efficient way to improve loan QC and compliance risk mitigation is data-centric technology, said Sanjeev Malaney, chief executive officer of San Francisco based-Capsilon.

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