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As federal housing agencies push mortgage firms to lend to more consumers, a recent survey indicates most lenders feel the regulatory risk is still too great for them to lower their standards.
In a poll conducted by the Collingwood Group throughout October, 71 percent of mortgage lenders said the odds of them lowering credit score requirements for borrowers are between "somewhat" and "extremely unlikely," with several saying they feel their standards are already relatively low and that they generally follow the credit parameters set by agency investors.
As homeownership numbers sit at their lowest level in nearly two decades, regulators have recently announced plans to boost mortgage availability by allowing the GSEs to purchase loans with lower down payments and by clarifying their repurchase framework.
Despite those steps and the strain some originators are feeling as the mortgage market shrinks, one anonymous respondent commented that "[i]t isn't worth the business risk" to relax their lending criteria.
"The reluctant to broaden the credit parameters to reach additional borrowers is a clear indication that lenders are passing up additional volume to avoid regulatory enforcement actions," the Collingwood Group said in a report detailing the survey findings.
The findings echo recent remarks from Bank of America's CEO, Brian Moynihan, who said the bank has little to no incentive "to try to create more mortgage availability where the customers are susceptible to default."
Out of all the regulatory worries contributing to lenders' anxiety, the Consumer Financial Protection Bureau's (CFPB) mortgage rules are the biggest concern, the survey shows, with 74 percent of respondents pointing to the bureau as the biggest source of concern. Also on the list were Fannie Mae and Freddie Mac, Federal Housing Administration program requirements, and state regulations, with each earning single-digit shares of responses.
In their views of CFPB, many originators questioned whether the bureau's rules are actually in American borrowers' best interests, and some said they feel the agency is too focused on finding faults and fining companies rather than offering guidance.
"CFPB is rule making through enforcement," said one unnamed lender. "No clear guidance on certain issues. They won't put anything in writing when you ask a question. No recourse to their fines and penalties. No real due process."
Other respondents indicated that while they're not concerned about any one agency, it's the volume and complexity of new rules that are making lending more burdensome. The vast majority also said that the enforcement of the new regulations is "subjective" and "unfair."
In response to the new regulatory environment, 82 percent of respondents reported their companies are taking expansionary actions, including increasing compliance staff, enhancing risk controls, and investing in compliance technologies. Another 9 percent said they are taking the opposite strategy by reducing third-party originations and tightening credit standards.
At least one lender remarked that his or her firm has left the residential mortgage business altogether, the Collingwood Group reported.
