A fine line exists between necessary regulation over consumer mortgages and limiting innovation and access in the mortgage industry. For some, the Consumer Financial Protection Bureau (CFPB) has overstepped its mandate to protect consumers and stifled the mortgage industry.

The CFPB was created in 2010 by the Dodd-Frank Wall Street Reform and Consumer Protection Act. Since it began practicing in 2011, the CFPB has changed the way real estate lenders, agents, title companies, appraisers and consumers do business. In 2018, the CFPB sought comments on how it ought to shift its practices in light of the soft regulation message passed down from its new leadership.

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CFPB adopts new strategic plan, aims to “go no further”

The Mortgage Bankers Association (MBA) recently published their response to the CFPB’s requests for information on how industry professionals want the CFPB to move forward with their mission to safeguard consumer financial markets. Uniquely suited to address the CFPB’s request for general comment, members of the MBA deal with the implications of the Bureau’s rulemaking on a daily basis.

In their response, the MBA lays out what they call a “road map” for future CFPB reforms.

Their suggestions aim to correct CFPB practices which have had “the effect of draining resources that could be used to expand consumer access by lowering the cost of credit, expanding service offerings, or funding innovation.”

The MBA claims innovation and growth are hindered by a lack of clarity around CFPB regulations and expectations. It’s easy to make a potentially costly misstep when professionals are unsure of the rules. For example, the Truth in Lending Estimate (TILA) “black hole” was an issue that went unaddressed for years before the CFPB issued a clarifying ruling in 2018. The black hole ended up costing lenders who avoided making valid charges when they fell between mandatory closing disclosure deadlines.

According to the MBA, this is just one example of the many gaps and foggy regulations the CFPB ought to clarify, a symptom of too many rules issued too fast. To that end, the MBA suggests limiting the CFPB’s rulemaking abilities by creating stricter rules for when regulations may be established.

The MBA also suggests reducing the CFPB’s abilities to enforce regulations and penalize rule breakers. It implies that in the past, the Bureau’s enforcement actions have been too many and too varied, with businesses unsure when an action merits enforcement. The MBA sides with new leadership that enforcement ought to be the last resort.

It also wants to get rid of the CFPB’s consumer complaint database, which allows public access to individual complaints about mortgage lenders and other financial companies. The MBA claims publishing the online database exceeds the CFPB’s mandate and opens the door for misleading and unverified complaints which can harm businesses. Instead, it suggests the CFPB hold onto the complaints received from consumers, verify and investigate them, and then only publish them if necessary.

Finally, the MBA wants the CFPB to make a number of regulation changes, including:

  • removing or expanding the qualified mortgage, as it claims the majority of lenders are too nervous about the liability created by granting a mortgage that doesn’t meet the qualified mortgage criteria, so homebuyers with nontraditional sources of income are unable to take out mortgages;
  • clarifying Real Estate Settlement Procedures Act (RESPA) anti-kickback regulations, specifically around marketing service agreements, joint advertising, desk rentals and lead generators; and
  • reducing the type of transactions which trigger reporting under the Home Mortgage Disclosure Act (HMDA) in order to protect privacy.

The CFPB is at a crossroads in 2019. A new director took charge at the end of 2018 and the anti-regulation administration continues to rollback rules put in place during the previous administration, including defanging the CFPB. first tuesday will continue to report any new developments, including whether any of these changes suggested by the MBA are eventually adopted.