A recent, national survey of community bank executives by mortgage technology provider Ellie Mae found that more than half (51 percent) believe that dealing with changing compliance standards is their most significant challenge.

Smaller community banks (less than $500 million in assets) were more likely to view compliance as a staffing issue, as they need to attract and retain the appropriate professionals to ensure compliance.

Mid-size ($500 million to $999 million in assets) and larger ($1 billion or more in assets) community banks tended to view the impact of compliance as a service issue, and said they expect the increased and new regulations to cause a slowdown in approval processes for customers.

All three groups agreed that in order to find the resources to combat increased regulations, growing mortgage operations was critical.

"I believe that if the community banks do not grow their mortgage divisions, then the cost of compliance will lead to unprofitability…The ones that are doing $300 to $400 million per year will remain viable," one community banker was quoted as saying in the survey.

Growth solves any number of problems, of course, especially growth in a business segment as critical as mortgage operations.

There’s just one problem. How to grow when scarce resources are so desperately needed in other business segments, namely compliance?

OK, fine. There’s more than one problem with all this.

There’s also the small hurdle of determining how to grow mortgage operations in a housing market that is recovering, but is still not – and may never be – fully "recovered."

And we don’t even want to begin tackling the existential problems present in the industry when it is compliance – not competition – that is front and center on the minds of top community banking officials these days.

In reading through the survey’s findings, as with all news releases, it is important to consider the source. Ellie Mae bills itself as "a leading provider of on-demand automation solutions for the mortgage industry. The company offers an end-to-end solution, delivered using a software-as-a-service model that serves as the core operating system for mortgage originators and spans customer relationship management, loan origination and business management."

In other words, Ellie Mae has a vested interest in helping banks grow their mortgage operations. Mortgage growth means more demand for the kinds of core processing software solutions they provide. This software is sophisticated and flexible.

And expensive.

And it’s that expense that has us worried. We’ve written extensively about the rising expense of compliance. It’s an expense that’s taking resources normally earmarked for growing segments like mortgage operations, and funneling them instead toward more paper pushers and attorneys.

And now here’s Ellie Mae advocating still more expenses, this time in the name of combating compliance costs. Spend more to save more, or something like that.

It’s a smooth sales pitch, and it might even be an accurate one. But that doesn’t make it any less misguided.

Yes, compliance has become a huge issue in the banking industry. But it has also become an even bigger distraction.

By taking their eyes off the competition in order to more thoroughly concentrate on compliance, community bankers risk striking out on both. If mortgage growth really is the answer for rising compliance costs, exotic new software is not what’s going to deliver it.

Rather, mortgage growth will follow heightened competition. The ability to differentiate yourself from the pack, to zig when others zag, to be attractive when everyone else is so obviously unattractive – that’s what growth is made of.

A focus on competing – and not merely complying – is what will lead to success. Fancy software or not.