May 21, 2014

Lenders cite CFPB regulations as top compliance concern in recent industry survey

Lenders identified Consumer Financial Protection Bureau mandates as their single greatest compliance challenge in a recent QuestSoft survey.

In this latest rendition of the poll, the more than 500 lenders that participated said that the deadlines and mandates set forth by the government agency take precedence over their other compliance concerns.

Mortgage lenders also emphasized their wariness of CFPB regulations in the 2013 rendition of the survey.

"Compared to last year's survey, lenders appear more weary than ever of the CFPB's rules, as non-CFPB issues are seen as increasingly lower priorities," Leonard Ryan, founder and president of QuestSoft, said in a statement. "It seems the message of the survey is that for many lenders, the mortgage environment has become highly dependent on the box of lending that the CFPB rules are creating."

Top concerns
It is worth noting that in both polls, the participants identified a handful of specific regulations that could potentially give them challenges. In the 2014 survey, 62.2 percent of respondents identified the Qualified Mortgage rule as a major concern.

In addition, 57.2 percent of the financial institutions that contributed to the latest poll singled out Ability-to-Repay violations as their single greatest concern, while 54.8 percent picked the Truth in Lending and Good Faith Estimate disclosure forms as a top concern.

Comparatively, 58.8 percent of respondents to the 2013 survey identified the TILA/GFE rules as their single greatest concern. Another 49.1 percent expressed their concerns about the QM rule, and 49.7 percent said that Real Estate Settlement Procedures Act fee tolerances were a major concern. Leonard Ryan, president of QuestSoft, commented on the situation.

"Lenders have a justified reason to be concerned when facing a multitude of regulations that could jeopardize compliance," Ryan said in a statement released along with the 2013 survey. "The Bureau is generally interested in working with industry leaders to make implementation and compliance as smooth as possible, however reforms and requirements can lead to stress and unforeseen consequences - especially if lenders are kept in the dark until the implementation date."

Vendor management
Many lenders in the 2014 poll emphasized the potential risks associated with vendor management, Ryan noted. He elaborated on the surging costs of processing compliance requests, stating that the expenses for his firm have risen four-fold.

Ryan said that in the current environment, many lenders are looking to consolidate their vendors. The corporate executive said his firm has received some tailwinds amid this trend.

Impact on loan origination
The wariness surrounding compliance with CFPB regulations, which seems to be growing every day, could potentially undermine loan origination by making financial institutions more reluctant to extend credit.

This development could potentially hinder loan sales, by reducing the supply of available debt.

Financial institutions that want to get involved in these transactions might consider contacting Garnet Capital Advisors, which has substantial experience in this space.