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Navigating the Evolving Mortgage Industry and Regulatory Landscape (2013-2014)

This presentation explores the mortgage industry's regulatory landscape as of September 2013, led by industry experts including Pete Mills from the MBA and Mike Fratantoni from MISMO. It covers key regulatory changes like the final DFA mortgage rules, risks associated with consumer protection, and anticipated impacts on the lending environment. Emphasis is placed on implementation challenges and how these regulations may redefine the market, effect consumer choice, and influence smaller lenders' viability within a tightened credit box.

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Navigating the Evolving Mortgage Industry and Regulatory Landscape (2013-2014)

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  1. Industry and Regulatory LandscapeSeptember 2013 Pete Mills – SVP Residential Policy MBA Mike Fratantoni – MISMO President, VP Single Family Research MBA Moderator - Rick Hill – AVP Industry Technology MBA Presented by David H. Stevens President, Mortgage Bankers Association

  2. Outlook for 2013 and 2014 Source: MBA August 2013 Forecast

  3. Rate Forecast Source: MBA August 2013 Forecast

  4. Estimated Originations 1990 to 2014: SF Market Source: MBA – August 2013 Mortgage Finance Forecast

  5. Net Production Income (basis points) Orig Vol ($M) Source: MBA’s Quarterly Mortgage Bankers Performance Report

  6. 2013: The Year of Implementation • Final DFA Mortgage Rules Issued in 2014: • Ability to Repay/Qualified Mortgage • HOEPA/High Cost Mortgage Loans • Loan Officer Compensation Rule • National Servicing Standards (2 Rules: RESPA & TILA) • Escrow Rule • ECOA Appraisal Disclosure Rule • Appraisals for High Risk Mortgages Rule • 4250 + Pages of FINAL Rules… • plus proposed rules, small entity compliance guides, • Official and unofficial guidance, • …but still many uncertainties

  7. …and there is more to come • Risk Retention/QRM • Just re-proposed (505 pages) • RESPA-TILA Integrated Disclosures • Expected late 2013, with implementation by ??? • HMDA Amendments • Expected late 2013…significant expansion, implementation by ??? • Anti-Steering Rules • Ongoing GSE Strategic Alignment and FHA Program Changes • State laws (e.g., CAHBOR) • And more? • CFPB has authority to issue rules to address “risks to consumers” it identifies without waiting for Congress to act.

  8. Implementation Challenges • The systems, programming and training challenges are unprecedented… • …and so are the risks of getting it wrong – legal, regulatory and reputational • Implementation time frame remains incredibly compressed • Will lenders, servicers and vendors be ready? • CFPB says supervision and enforcement will be “measured”… • But what about the AGs? The plaintiffs bar?

  9. Impact: the Known and the Unknown • Biggest Known Impacts • QM/QRM: Define the Credit Box in near-term, possibly the long-term • Fed Data: 20% + of purchase mortgages > 43% DTI • Fees and Points Cap: Small Loan impact • Implications for LMI, Minority Borrowers • National Servicing Standards: • Sharply higher costs of servicing, esp. for small servicers • Reconsolidation of Market • LO Comp Rule: • Combined with QM: Further Impairs on Broker Channel? Rise of Mini Corr • Uncertainty: Industry remains cautious, risk taking remains constrained • Fed 2012 HMDA Report on current credit conditions: “…almost no risk-taking in the [conventional] mortgage market in the aftermath of the financial crisis.” • Biggest Unknowns • QM: Availability and Cost of Non-Safe Harbor Lending, Non QMs • Implementation: Can we do it? • Enforcement? CFPB, AGs and Plaintiffs Bar

  10. Cumulative Impact of Regulation

  11. Cumulative Impact on Industry/Consumer • Community Based Lenders • Community banks, Independent Mortgage Banks (IMBs): Too small to survive? • Will Costs become prohibitive? (especially on a per unit basis) • Re-aggregation of Market? (especially with respect to servicing) • Implications for competitiveness, ability of market to expand/contract… • Large Lenders • Higher costs: impact on relative returns on mortgage vs. other business lines • Reputational risks of mortgage lending and servicing? • Consumers • Uncertainty = Tightened “Credit Box” in Near Term • Reduced Competition if lenders leave or reduce their mortgage lending • Constrained Product Innovation • Fewer Choices • Cost of Credit will rise, but by how much?

  12. Contact Information & MBA Resources Rick Hill Associate Vice President, Industry Technology rhill@mba.org (202) 557-2718 MBA Homepage: www.mba.org MBA Research Page: www.mba.org/research Research Institute for Housing America: http://www.housingamerica.org MISMO: www.mismo.org

  13. Thank You to our 2013 Fall Summit Event Sponsor

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