Banks will face increased costs and reduced revenues as the federal government drafts and implements a new series of regulations affecting mortgage lending and servicing, according to the Comptroller of the Currency.
Acting comptroller John Walsh said many of these regulations – including risk retention and mortgage disclosures -- are mandated by the massive Dodd-Frank bill. The OCC chief believes these regulations could fundamentally change the residential lending business while the housing market is still struggling, he told a Financial Services Roundtable meeting late this week.
"Are we trying to do too much, too quickly?" the comptroller asked, speaking at a Financial Services Roundtable meeting.
However, regulators initiated interagency talks to create a comprehensive set of servicing standards, he said, due to the "foreclosure mess." Special audits conducted in the fall discovered a "complete mishandling of the foreclosure process, he said. "That routine processing of bank files and legal documents could deteriorate into safety and soundness failures requiring formal enforcement orders is simply astounding."
The comptroller hopes regulators will be able to draft new mortgage servicing standards by year-end that will affect banks and nonbank servicers alike. But he warned that the new standards could change the servicing business in important ways.
"Some may decide that the high-volume, low-margin, technology-dependent model no longer works financially," Walsh said. "If major players scale down or leave the business, how will that affect the mortgage market and access to homeownership?" he asked.
