Posted: 03 Dec 2013 04:00 AM PST
The CFPB recently released a report on the operational costs of regulatory compliance. The 176-page report is entitled “Understanding the Effects of Certain Deposit Regulations on Financial Institutions’ Operations: Findings on Relative Costs for Systems, Personnel, and Processes at Seven Institutions.” In the report, the CFPB focused on “the costs banks incur to comply with the regulations that the Bureau inherited and that govern consumer deposit-related products and services.” In particular, the CFPB studied compliance costs associated with “checking accounts, traditional savings accounts (e.g., statement/passbook savings), debit cards, and overdraft programs (e.g., overdraft coverage for ATM and debit card transactions).”
The report is based on data obtained from seven banks ranging in asset size from under $1 billion to over $100 billion. The regulations on which the CFPB focused were Regulations DD (implementing the Truth in Savings Act), E (Electronic Fund Transfer Act), P (Gramm-Leach-Bliley Act financial privacy requirements), V (Fair Credit Reporting Act), and relevant sections of the Fair Credit Reporting Act. The CFPB interviewed about 200 employees and executives at the seven participating banks, and the interviews focused on “identifying all of the banks’ operational activities and processes to comply with the regulations in question.”
The study focused on ongoing or recurring operating costs of the regulations, with the CFPB noted that it was only able to capture limited information on the one-time or implementation costs of coming into compliance with the 2009 “opt-in” overdraft regulations. The CFPB found that compliance costs were concentrated in the following business functions: Operations, Information Technology, Human Resources (as it relates to employee training), Compliance and Retail.
For each function at each bank, the report indicates the percentage of total compliance costs that such function accounted for. For each bank, the report also presents total compliance costs as a percentage of total retail deposit operating expenses. The CFPB states in the report that it avoided reporting dollar figures because such figures have “little meaning without comparison to a common denominator” and it would have created a risk of “revealing the identities of the otherwise anonymous participant banks or divulging proprietary information.”
We fail to see how providing dollar amounts would have created such risks. By only using percentages, the CFPB has obscured the magnitude of the dollar costs associated with regulatory compliance. In addition, the CFPB’s percentage estimates do not take into account at least two significant categories of costs: opportunity costs (i.e. profits foregone from business opportunities not pursued because of regulation) and litigation costs. (In explaining its decision not to include opportunity costs, the CFPB observes that while such costs “represent a cost to the bank, such lost profits do not necessarily reflect a loss to society.”)
An important takeaway from the report is that the CFPB is likely to expect financial institutions when commenting on compliance costs associated with proposed rulemakings to follow the techniques and methods used by the Bureau in the study. For example, the CFPB suggests that in addressing costs of a potential new regulation, an institution should “describe the major business functions affected by [the] regulation and trace the effects of the regulation through each function.”
When the CFPB announced its plans in October 2012 to study compliance costs, it stated that it hoped “to become better and smarter regulators” through its research. We certainly hope the study has provided the CFPB with an understanding of bank operations that will be useful when assessing the compliance costs of future rulemaking. However, the CFPB’s statement that “the techniques the Bureau used in the Study will not necessarily work to produce reasonable estimates of the costs of a potential new regulation” does not provide us with great cause for optimism.
Most significantly, while stating in the report that the CFPB “will always strive to improve its ability to avoid or reduce unnecessary compliance costs,” the Bureau makes several other statements that lead us to question how seriously it takes that commitment. More specifically, the CFPB qualifies that commitment with the statement that “in many cases institutions themselves may be better able [than the Bureau] to reduce their [compliance] costs.” According to the CFPB, “the most significant potential savings may come from institutions’ increasing operational efficiencies rather than the Bureau changing [a] regulation.”
As a further qualification, the CFPB states that “where regulatory and business processes, systems, and personnel are interwoven, it is possible that institutions may be able to reduce regulatory costs by streamlining operating costs more broadly. Institutions may find ways to reduce their operating expenses through better technology systems.…To that extent, industry has at least some capacity to reduce its compliance operations costs independent of steps that regulators can take.” Of course, the ability of financial institutions to lower costs does not relieve the CFPB of its obligation to avoid imposing unnecessary compliance costs in the first instance.
Next President’s Call is Thursday, Dec 12
We had our first Presidents Call this past week. I was a little disappointed that we only had 12 Presidents on the line. But I do understand things come up. The December call will be December 12, 2013 at 1:00PM Eastern time. A reminder will go out this week to keep you informed with the date. I would like to have every State President on the call. Please arrange your schedule to make this 1 hour call.
NAMB and the CFPB
NAMB continues to work with the CFPB on all issues. I have to tell you that we were very pleased with the Disclosures release. Rick Bettencourt, our GA Chair, put out a great video about these forms. We will continue to monitor the work on these as they progress. The disclosure of the closing docs 3 days before closing is still an issue. Many other associations are working on this also, so stay tuned.
Servicing Those Who Have Served Us
As we now are in the home stretch for the December Holidays, I was reminded by a dear friend of mine that we cannot forget about our servicemen and women serving for us all over the world. I have personally begun to put together some boxes to send to these people protecting our freedom every day. If you are interested in this project, contact your local VA Hospital and see if you can do anything to help some of these courageous men and women that have returned and may be having problems here at home. I think the mortgage industry had a really good year in 2013 and we should give back to these people that again allow us to do our job and live in this great country with the freedom we have. This is just a reminder to do your part and pay it forward. It will come back in rewards to you.
Your Support in Washington is Needed
We are announcing the dates for the Legislative Conference this week. Look for an announcement with dates and itinerary in your e-mail. We are going to need a large contingency with us on the hill this year, so this should give you plenty of time to make the reservations to get there. Pay attention to the GA Committee reports for information on setting up contacts. You need to know who is representing you in Washington and we need to have them know who you are. Rick is putting together a primer on how to make contact, how to get a local appointment, how to talk with your representatives and how to inform them of our mission at NAMB. It should be released shortly.
This Month’s Honoree
Starting with December, the first MMM of each month will pay honor or recognition to someone that not only makes my job a little easier, but donates time to making NAMB successful. The first person I am recognizing is someone that is one of the most important to NAMB. Harry Dinham is a Past President of NAMB and now he oversees our membership information; the information that is reported on the website, the processing of all of these memberships, the designation programs, the testing for these programs, the Lending Integrity Seal of Approval and the gatherer of all of the information for future use. He also makes sure that committees get all of their e-mails that members send, the expiration of contracts, the follow up for renewals and just about anything having to do with operations. He is a very valuable person and I appreciate everything he does to keep NAMB running. Thanks Harry!!
December is the month at 50% of all memberships expire. We are asking Harry to make sure that these renewals go out in the month that they expire. Please renew your membership on time. It save us a lot of time and as those that end up calling you are volunteers, it will lessen the load that they do to keep our association moving forward. More next Week!!!!!
Donald J. Frommeyer, CRMS
Consumers are spending like never before. A big reason is because HELOC’s are up and they are up big time. Are we using our homes as ATM’s again?
Today’s real estate news and mortgage news is about the serge in HELOC’s. Moody’s is reporting they have grown by 11% in 2012 and 16% so far in 2013. In fact they are saying that they could hit a 5 year high in 2014 of over 300 Billion! So it looks like we’re making a run on our homes as ATM’s again. Seems the more things change the more they stay the same, yes?
In more mortgage news, the Freddie Mac economist, Frank Nothaft, is saying that we can expect interest rates to be in the 5′s in 2014. So as the saying goes, it’s best to get while the getting is good. Couple this with tighter underwriting and QM and as real estate agents and mortgage loan originators we’d better step up our game and start getting back to the basics. And if you’re a consumer, now would be a good time to get something started.
Not to escape any hard times, according to Rick Sharga the VP of Auction.com, lenders are going to have a tough Q1 in 2014. Why? FHA’s MI makes it tougher to get HUD financing, Affordability is fading and refinances are way off. But this is nothing new to you, our NREP viewers, as we’ve all been talking about this for over a year now.
The good news is, there’s still time to take advantage of rates and programs now if you’re a consumer and as real estate and mortgage professionals we know how to create our own market to succeed.
Well thanks for finding your real estate news and mortgage news here at the National Real Estate Post with Frank and Brian. We truly appreciate your viewership, sharing and your comments below.
Have a great day.
Frank and Brian
Analysts prep for extended foreclosure timelines, fewer loan modifications
A few things won’t change, credit analyst Jack Kahan with S&P noted, but the new rules will increase expenses, extend foreclosure timelines and prompt servicers to less frequently select the foreclosure option over loan modifications and deeds-in-lieu of foreclosure in future circumstances.
S&P, which looked deeply into how the January launch of the rules will impact mortgage finance, warned that more borrowers are going to have a hard time accessing mortgage credit. And when they do, it will take longer and cost more in some cases.
While originators and aggregators are expected to continue in their origination of non-agency loans using existing credit standards, some originators are going to insist on limiting their risk to only loans that meet the qualified mortgage’s ‘safe-harbor standard’, to ensure the underlying underwriting standards shield the company from litigation risk.
So who will be most impacted by the rules?
S&P says borrowers wanting interest-only products are likely to experience a slowdown in the borrowing process. And, under new underwriting standards, a very specific class of borrowers — those with high net-worth and non-wage incomes — may find it takes a bit more work to get through the originations process in 2014.
The end result will be a market where some lenders have no choice but to originate a few non-QM loans.
Raj Date, a former Consumer Financial Protection Bureau official, recognized room in the non-QM space earlier this year and launched Fenway Summer, a firm that hopes to offer lending solutions to borrowers who fall outside QM.
But no matter how firms respond, the January shift is going to have some impact.
Any expenses related to the changes will be passed onto borrowers, nullifying the basic principal of protecting homeowners from unexpected losses, S&P said when analyzing the slew of new rules.
Prices are expected to go up to cover new processes completed by originators in the underwriting process, the ratings firm said.
“Ironically, originators will need to watch these costs carefully, as they may increase points and fees, which will determine whether a loan can be considered a QM,” S&P concluded.
The New Fair Deal Banking And Housing Stability Act of 2013 has arrive on the scene.
Yes it has arrived and it’s more than likely going to get shot down of course. And that’s a good thing for the most part. I mean without the GSE’s and FHA, what the heck would we do.
We believe it’s grandstanding. Someday when a politician screams stuff like “bad brokers, mortgages icky, GSE no good, bad FHA” people will say, “yeah, yeah.. get another platform to stand on”. Man… time to find something of substance. Hello…. They’re making a fortune over there, go like create jobs or something.
Anyway, you all have a wonderful Thanksgiving!
Frank & Brian
Washington, D.C. – The Federal Housing Finance Agency (FHFA) today announced that the
2014 maximum conforming loan limits for mortgages acquired by Fannie Mae and Freddie Mac will remain at $417,000 for one-unit properties in most areas of the country.
The Housing and Economic Recovery Act of 2008 (HERA) establishes the maximum conforming loan limit that Fannie Mae and Freddie Mac are permitted to set for mortgage acquisitions. HERA also requires annual adjustments to these limits to reflect changes in the national average home price.
A description of the methodology used in determining the loan limits can be found in the attached addendum. Questions concerning the conforming loan limits can be addressed to
Further information on potential future changes in the maximum size of loans that Fannie Mae and Freddie Mac guarantee will be forthcoming.
The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. These government-sponsored enterprises provide more than $5.5 trillion in funding for the U.S. mortgage markets and financial institutions.
There’s more talk about another real estate bubble on the horizon.
You can pretty much take the data that’s out there and spin it any way you want to. Phoenix is showing signs of it and they’re typically good indicator. But there’s many things to consider and we touch on them on today’s show.
Mr. Watt seems to be getting closer to getting in at FHFA. Obama thinks he might have this one wrapped up. If he does, you never know, you might just see principle reductions in your future when it comes to GSE modifications. Is this good? Is it bad? You let us know.
With that you all have a wonderful day and a great holiday and long weekend. We know we need it!
Frank and Brian
The difference between mediocre and awesome is pretty simple. It’s just you.
NAMB Report on The New Mortgage Disclosures
NAMB Government Affairs Update CFPB
If our initial interpretation of the new mortgage disclosures holds, then the CFPB really should be applauded for their work on the new integrated mortgage disclosures.
NAMB thanks the CFPB and the teams that worked on the new forms for listening to our commentary and taking our suggestions into consideration.
A factsheet about the “Know Before You Owe” mortgage disclosures is available at:
A factsheet about the testing process the CFPB used to arrive at today’s rule is available at:
The “Know Before You Owe” mortgage disclosure rule will be available at:
Our efforts, along with your support, really do go a long way. We may not always make our efforts public, but understand that we have our industry’s best interest as well as that of the consumer at heart.
NAMB does have open lines of communication with our regulators and we will continue to work with them to improve the state of housing and do what is best for the consumer.
Thank you again for all of your support. I look forward to reporting back next week.
Please share this with your colleagues, friends, and customers….