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

National Mortgage News reports that new Consumer Financial Protection Bureau rules may increase compliance costs and cause a shift with the community lenders to leave the mortgage business. However, a watchdog report found that smaller organizations have remained active.

Monday, a Government Accountability Office report said, “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.”

GAO Auditors found, through interviews, that these institutes increased their workforce, updated their systems, or hired vendors to aid with the new CFPB rules.

The results have not been nil. Many community banks needed to increase their fees or originating home equity lines of credit altogether. Some started offering bridge loans to offset costs. There was at least one reported incident where a credit union had to outsource to a third-party servicer, but could still stay communicative with the borrower.

Banks are staying in the mortgage business because it remains “important to them for the revenue it can generate and their customer-focused business model.”

Many still have portfolios that they service or hold the servicing rights on loans sold to secondary markets.

“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.

GAO continued, “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.”

Small banks and credit unions were also not subject to sections of these new 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.”

The National Association of Federal Credit Unions has had some concerns about the servicing rules exemptions. “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 scheduled to review its new rules in 2018 with some requirements implementing later that year.

The CFPB has stated that they want some flexibility designing an effective methodology. “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.

Source: National Mortgage News