Bankers Say Dodd-Frank Rules Restrict Mortgage Lending

Although the Qualified Mortgage (QM) rule has been in effect under Dodd-Frank regulations since January 2014, a vast majority of mortgage bankers expect that new lending rules from the Consumer Financial Protection Bureau (CFPB) will further restrict their lending abilities, according to a recent survey from the American Bankers Association (ABA).

Nearly 80% of banks expect the CFPB’s mortgage lending rules will continue to cause a “measurable reduction” in credit availability, with 19% of respondents calling this impact “severe,” according to the ABA’s 22nd Real Estate Lending Survey.

Compiling responses from 182 participating banks, data for the 22nd annual survey was collected between March 4 and April 17 of this year. Of the survey participants, 68% of respondents wet commercial banks and 32% were savings institutions. Many (77%) of the participating institutions had assets of less than $1 billion.

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“As expected, the ability-to-repay and QM rules have dampened the housing market recovery,” said Robert Davis, ABA executive vice president, in a written statement. “Combine that with new mortgage disclosures, which are just around the corner, we’ll continue to see a slowdown in what should be the ideal time to buy a home.”

High debt-to-income levels was the most likely reason for a mortgage loan not meeting QM standards followed by lack of required documentation, according to the ABA findings.

Despite these setbacks, bankers did report some positive results, including reporting the highest percentage (14%) of loans to first-time homebuyers in the survey’s 22-year history. Last year this figure was 13%, the highest share of single-family loans reported since 2007.

In other positive findings, foreclosure rates at surveyed banks dropped from 0.78% in 2013 to 0.57% in 2014, while the average delinquency rate for single-family homes also decreased from 2.16% to 1.76%.

As the findings have indicated, bankers are most concerned about compliance and the increasing regulatory burden, followed by economic uncertainty, the interest rate environment and community bank challenges. In terms of regulation, 87% of responding banks said regulations are having a “moderate” to “extreme” negative impact on the bank’s business.

And that includes the burden of complying with the CFPB’s TILA/RESPA Integrated Disclosure, or TRID, implementation. The rule has sparked considerable controversy among many in the mortgage banking industry, especially in recent weeks following the CFPB’s announcement that it would offer a grace period for the rule’s enforcement.

While many mortgage industry stakeholders and trade groups appreciated the move from the CFPB, the appreciation was overshadowed by an industry-wide disappointment that the Bureau did not implement a “hold harmless period” after TRID rules take effect August 1.

“While the bureau acknowledged the implementation challenges of this rule, CFPB’s decision will only provide elicited assurances to bankers in their efforts to comply,” said ABA President and CEO Frank Keating in a written statement.

ABA also believes it is critical to establish a formal transition period for banks, and strongly advocated for restrained enforcement by providing survey data on vendor readiness to the bureau.

In April, the ABA surveyed its banker members in efforts to learn more about the progress their vendors have made in delivering systems to comply with TRID.

Of the approximately 800 bankers that participated in the survey, 74% said they are using a vendor or consultant to assist with the implementation of the TRID rules, while 26% said they were not using these additional parties.

Most bankers (36%), however, noted that their vendors have not yet provided a solid delivery date as to when they will deliver final and completed production software systems to comply with the new rules. The next largest share of bankers (21%) said they expect to receive their completed systems in June.

View the ABA survey.

Written by Jason Oliva

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