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TH E M R EP O RT | 43 O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T ORIGINATION THE LATEST Lower Profits Prompting Pessimism Several dynamics—chief among them government regulations and market competition—are dampening lenders' spirits, Freddie Mac survey reveals. S low household formation, mortgage demand, and compliance costs associ- ated with new regulatory requirements are impacting lend- ers' business operations and prof- itability in the housing market. While the economy has come a long way since the Great Recession, the housing market continues to face challenges and opportunities. Strong labor markets and low mortgage rates have been driving forces behind the recovery period. Fannie Mae's Mortgage Lender Sentiment Survey found de - pressed household formation and new regulatory requirements, like the TILA-RESPA Integrated Disclosure (TRID) are affect- ing business operations and profitability among lenders. Freddie Mac determined that lenders' pessimistic profit margin outlook is driven by two leading factors: • Government regulatory compliance": The share of lenders citing this as one of the two most impor- tant factors reached a survey high of 61 percent in Q 3 2015, indicating the impact of TRID, which has been a challenge for many lenders. The workflow changes and technology updates necessary to help ensure com- pliance have been significant, according to lenders. • "Competition from other lenders": The concern with increased market competition could be attributed to lenders' contin- ued concerns with mortgage demand growth. With the refi- nance boom ending, lenders are competing for a smaller origina- tion market. Survey results also show that lenders today are less likely than they were in 2014 to use new mortgage products or to expand marketing programs as strategies to increase their profit margin, indicating fewer opportunities for lenders to exploit. Part of this can be ex- plained by the maturing of the Housing Affordable Refinance Program (HARP), which cur- rently is set to expire at the end of this year. Many lenders have successfully leveraged this program, but fewer HARP op - portunities remain. The survey results also showed that lenders cited "operational efficiency" as the key to success throughout 2015. "Although lenders continue to face challenges from rising compliance costs and competitive pressure, this tough business environment creates an opportunity for lenders to harness these challenges to create competitive advantage," said Steve Solomon, Director of Strategic Customer Management at Fannie Mae. "Companies are finding innovative ways to leverage technology, streamline processes, optimize staff, and maximize vendor performance to not only maximize operational efficiency, but to also provide a better customer experience." more choices, lower costs, and protect hardworking taxpayers from more bailouts." The SAFE Transitional Licensing Act, sponsored by Reps. Steve Stivers (R-Ohio) and Terri Sewell (D-Alabama), offers mortgage loan originators a 120-day grace period during which they will have the right to continue originating loans when they change jobs. Congresswoman Maxine Waters (D-California), the committee's ranking member, expressed her disapproval of the committee Republicans to un - dermine the provision set forth in Dodd-Frank by rolling back investor protections and ulti- mately determined that their fo- cus should be turned toward homelessness. "While some of these propos- als are modest or incremental in nature, seeking, in good faith, to make improvements to existing law, the vast majority of the bills we will consider today represent the next phase of a coordinated attack on the proper functioning of our financial markets," Waters stated. " She continued, "It's clear that the majority has been deter - mined to use this committee to undo the important reforms we created in the wake of the 2008 financial crisis. And soon, on the House floor, I fear there will be attempts to gut the administra - tion's rule to rein in conflicted retirement advice, as well as efforts to, once again, use the budget to undercut protections for those consumers who need them the most: mortgage bor - rowers, payday customers, ser- vice members, and students. So far, we have seen dozens upon dozens of piecemeal bills looking to undermine financial reform— either under the guise of "capital formation" or somehow giving consumers the "freedom" to ac - cess harmful financial products. And soon, if press reports are any indication, the majority will switch gears and work to repeal sections of Dodd-Frank entirely— including the Volcker Rule and the Financial Stability Oversight Council."