There was a fascinating power struggle at the CFPB this week. The departing director, Richard Cordray, named his deputy, Leandra English, to be his successor (or acting director until Cordray’s term ends next year). President Trump named his own acting director in Mick Mulvaney.
We then had two people claiming to head the CFPB – Ms. English and Mr. Mulvaney. Ms. English sued to nullify President Trump’s appointment and appears to have lost.
What does this all mean for borrowers and those of us in the mortgage and real estate industries? Possibly a lot.
The CFPB or Consumer Financial Protection Bureau is an extremely powerful and unique agency that was created by the Dodd-Frank Legislation in 2010. It is funded by the Fed and is largely outside the control of Congress.
Its regulators have been very aggressive and heavy-handed with frequent audits and very stiff fines in many cases. Our long-time compliance attorney, in fact, cited the CFPB’s heavy handedness as one of the reasons he retired. He was appalled by how relentless the CFPB’s young attorneys were going after lenders for alleged offenses that often had no effect on borrowers.
Mr. Trump’s appointment has been openly anti-CFPB, and he will likely try to roll back some of the agency’s enforcement efforts.
There are two perspectives in regard to this.
The first is that a strong CFPB is necessary to keep the mortgage industry in line in order to prevent the massive abuses that took place prior to the 2008 meltdown. This can be countered, however, by pointing out that there are many other factors already in place that would prevent those abuses. These include scrutiny from other regulatory agencies such as HUD and state agencies, much more stringent licensing requirements for most loan officers (a good thing), stronger regulations in general, and the lack of a market for the abusive mortgages.
The other perspective is this. Lenders and loan officers spend an inordinate amount of time and money to make sure they never endure a CFPB investigation (b/c of the costs and potential fines). These efforts often do little to help consumers and only increase the overall cost of obtaining financing.
Hence, a weaker CFPB could result in more free time for lenders and loan officers, and paradoxically, lower borrowing costs for consumers.
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