Many housing and mortgage industry professionals believe that the overall outlook for their business in the next six months is "grim," according to the Collingwood Group Mortgage Industry Outlook Report.
The report, which was published on Tuesday, was the first-ever such report published by the Collingwood Group. The Washington, D.C.-based advisory firm will be conducting a monthly survey of mortgage and housing industry professionals to report on the state of the business.
Only 30 percent of mortgage industry professionals surveyed for the report believe that business conditions will be better in the next six months, while 41 percent said conditions will stay the same and 29 percent said they believe conditions will be worse. Fifty-nine percent of respondents said their current business conditions were worse in September than they were at the same time last year.
Only 2 percent of respondents said they believe it is extremely likely that the housing market will improve in the next six months. One reason for the bleak outlook is the effect of regulation on the housing and mortgage industries, which has been increasing since 2010 and especially in the last year, forcing businesses to devote more and more resources toward compliance, the Collingwood Group report said.
"The implementation of the Consumer Financial Protection Bureau (CFPB) origination and servicing rules have exposed lenders to host of new compliance demands and risks," the report said. "The challenges lenders are managing are exasperated by the increased level of federal, state and local government enforcement activities. The results of the survey suggest that this is having a strong impact on businesses’ bottom lines."
Only 9 percent of respondents reported that the pace of regulation has had little or no effect on their business, while 19 percent said the pace of regulation has had an extreme impact. In all, 78 percent of housing and mortgage professionals surveyed said that increased regulation has hurt their business in some way.
"The results of our first survey indicate a pretty grim outlook for the next six months," Collingwood Group Chairman Tim Rood said. "The fast pace of regulatory enforcement is a 1-2 punch for many lenders."
The effect of increased regulation has spilled over into consumers. In many cases consumers have been prevented from obtaining a mortgage loan, since the increased regulation has forced the industry in general to tighten credit availability. Seventy percent of survey respondents said they believe there is a high to extremely high correlation between regulation and the need to tighten mortgage credit.
"Many lenders are torn between making credit available to lower credit score borrowers and mitigating exposure to regulatory risk," said Brian Montgomery, Collingwood Vice Chairman and former Acting United States Secretary of Housing and Urban Development and Commissioner of the Federal Housing Administration.
As far as the need to strike a delicate balance between maximizing loan volume and minimizing risk, brought on by increased regulation, many lenders have chosen minimizing risk. Thirty-seven percent of respondents ranked their likelihood of lowering credit score requirements to obtain a mortgage either a five or six on a scale of one to 10, indicating a neutral opinion.