According to The Community Home Lenders Association (CHLA), non-bank mortgage lenders seem to more regulated when it comes to consumer lending protections than their bank counterparts (Regulations). When is enough, a little too much?
Since the crash of 2008, Congress has passed a whole bunch of new rules and regulations. Most of these are a result of the infamous Dodd-Frank Act, which covers the activities of both non-bank and bank lenders.
The biggest change being the creation of the CFPB to oversee all lending activities. However, many, including those in Congress, believe the consumer is better protected when dealing with a Bank as opposed to a non-bank mortgage lender. Much of this perception comes from the press as a result of the problems consumers experienced back in 2008. Could the intention be to move all conventional lending to the banks?
Now, these new rules and regulations threaten to hurt those they were intended to help, the consumer. Because of the new rules, bank and non-bank lenders alike have tightened credit guidelines for fear of running afoul of the regs.
Banks have just about eliminated lending to anyone with less than perfect credit and/or that clearly meet all standard QM criteria. They are playing it safe. As a result, much of the riskier lending has moved from banks to non-banks.
Many of the new rules do help to protect consumers and clarify things for lenders. That’s good. The problems come with the interpretations for enforcement.
Non-bank lenders believe the scales are tipped against them. They are more closely scrutinized by CFPB and other regulators, while banks get a pass, i.e. loan originator licensing. This increases the time, effort and cost of compliance, making it more difficult for them to compete for the better quality applicants.
So, when is enough, enough? When non-bank lenders can demonstrate that their lending is as safe as that of the banks. Unfortunately, it’s a chicken and egg situation.
Because of current regulations, non-bank lenders end up writing the riskier loans while banks play it safe. Non-bank lenders need to ensure that their loans perform as expected to develop a basis for their claim to safe lending. That includes eliminating many of the consumer complaints about service. Actions speak much louder than words.
Staff must be trained to help educate consumers, service the consumer and manufacture a quality, compliant loan. To do this efficiently, lenders need to effectively use technology and implement systems and processes that track and monitor a loan’s progress to avoid and eliminate defects which cause delays and problems. Doing so will help to create safer, non-bank originated loans and just may tip the scales toward the non-bank lenders.
Stay compliant my friends.