Survey: Loan Production Costs Expected to Rise

With less than one year left before the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA) disclosure rule goes live, a new survey finds more lenders are battling with increased loan costs as quality control becomes the top concern.

In a poll of mortgage executives conducted at the Mortgage Bankers Association's (MBA) Annual Convention earlier this month, data management solutions firm Capsilon found 95 percent of lenders surveyed are either somewhat concerned about loan quality right now, with four in five saying they are "very concerned."

With the TILA/RESPA requirements scheduled to go into effect in August 2015, 84 percent of survey respondents said their companies have already started preparations to be compliant by the deadline. More surprisingly, Capsilon said, was that 7 percent of respondents said their companies have not yet begun preparations, while 9 percent were unsure.

As the majority of lenders prepare for the deadline, the survey also found firms are planning to pay more money for compliance-related activities next year on top of the increased costs they've already taken in 2014.

According to the findings, 80 percent of executives surveyed reported that their 2014 loan production costs are somewhat or significantly higher than they were last year as a result of regulatory requirements, and 39 percent anticipate spending more for compliance next year.

The results fit with MBA's most recent report on mortgage banking profits, which found total loan production expenses averaged $6,932 per origination in the second quarter, down more than $1,000 from the first quarter but up more than $1,000 from the same time the year before.

"Clearly, this survey data confirms that lenders are struggling with increasing costs as they contend with a myriad of new regulations that require a heightened focus on data integrity and loan quality," said Capsilon CEO Sanjeev Malaney.

To help keep labor costs and hassle down, Malaney recommends lenders adopt an automated, data-centric model to stay competitive.

"Technology gives lenders the ability to move to a straight-through loan processing model, where much of the workflow is automated, with only a small percentage of loans requiring human intervention," he said.