Small Banks and CUs Adjusted Well to CFPB Mortgage Rules: GAO

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Despite fears that increased compliance costs from new Consumer Financial Protection Bureau rules could drive community lenders out of the mortgage business, a watchdog report found that smaller companies remain active.

"Although new regulations related to mortgage lending and servicing may increase compliance costs for community banks, our analysis suggests that these lenders generally appear to be participating in residential mortgage lending much as they have in the past," said a Government Accountability Office report released Monday.

In interviews with community banks and credit union executives, the GAO auditors found these institutions increased staff, updated their data systems or hired vendors to assist with implementing the CFPB servicing and lending rules.

But there have been tough choices. Many increased fees and some stopped originating home equity lines of credit or offering bridge loans due to the compliance costs. One credit union that outsourced to a third-party servicer told GAO they were relieved because they can "still speak directly with their borrowers."

But banks are not leaving the mortgage business, according to GAO because it remains "important to them for the revenue it can generate and their customer-focused business model."

Many continue to service mortgages in their portfolios and hold mortgage servicing rights on loans sold to the secondary market.

"For most community banks with residential mortgages, these mortgages continued to average at least 10% of assets in their portfolio," GAO said in audit report entitled: Community Lenders Remain Active under New Rules, but CFPB Needs More Complete Plans for Reviewing Rules.

"In addition, median residential mortgages as a percentage of assets have generally increased in the past couple of years for community banks of all sizes. Thus, community banks generally do not appear to be shifting their portfolios away from mortgage lending," GAO said.

Regulators exempted small banks and credit unions from parts of the mortgage servicing rules.

"Some representatives at community banks and credit unions we spoke with commented that CFPB’s exemptions for small servicers and creditors had been helpful to their businesses and customers,” the report says. “Several community lenders noted that CFPB’s small servicer exemption, which excludes from certain parts of CFPB’s mortgage servicing rules entities that service 5,000 or fewer mortgages, had been helpful in reducing some of their compliance requirements.”

Despite the exemptions, the National Association of Federal Credit Unions still raised issues about the servicing rules. "The findings underscore the fact that increasing compliance costs have impacted customers’ costs and choices," said Carrie Hunt, NAFCU's general counsel. "The report notes that several institutions no longer offered customers certain products because offering them would necessitate additional regulatory requirements. For this reason, we continue to urge CFPB to provide greater guidance and clarifications on these rules to insure that credit unions can continue to serve their members' mortgage needs.”

The CFPB is slated to conduct a regulatory review of its new rules in 2018. But some the mortgage servicing rights requirements won't be fully implemented until the end of 2018.

CFPB officials said it was too soon to identify relevant data and that they wanted flexibility to design an effective methodology. However, without a completed review plan, "CFPB risks not having time to perform an effective review before January 2019 — the date by which CFPB must publish a report of its assessment," GAO said.

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