I ran the least regulatory-compliant mortgage operation in the country.
Prior to 2008, my business model focused entirely on low-documentation loans for prime (“A Paper”) borrowers. My model was very simple: guarantee $3,000 in closing costs for most refis and $5,000 in closing costs for most purchases, and only make $3,000 per loan (an amount that would put any mortgage company out of business today).
When the loans closed, I would audit the closing statements and send refund checks to the borrowers for any amounts that exceeded my guaranteed costs (it was both integrity and good marketing) – and put a copy of the check and my letter in the file. Word spread quickly, and I was so busy I couldn’t handle the leads gushing in.
Even better, WAMU and Wells Fargo gave me special pricing because of my volume, making my rates even lower than those of my competitors. And – I was soon closing over 100 loans per month (an unimaginable number for a loan officer today).
But here’s the interesting part: I was extensively audited by CA’s regulators (due to the actions of another loan officer in my office), and very few of my loan files were even close to “compliant.” I was missing “good faith estimates” and the myriad other necessary disclosures that were supposed to be in every file.
I ran a very low-overhead operation that was focused on extreme integrity, and very low costs and rates – so I just never worried too much about compliance.
Fortunately for me, there were copies of my emails and letters guaranteeing closing costs, margins, and interest rates – along with copies of my refund checks and closing statements showing how low my rates and fees were.
As a result, the regulators did nothing. No fines. No hand-slaps. No nothing.
All they did was ask me to be more compliant – and I readily complied, given how understanding they were.
But here’s the thing: If that happened today, the CFPB would impose an enormous fine, take my license, put me out of business, and probably pursue criminal action – even though no consumers were misled or harmed in any way.
The Consumer Financial Protection Bureau (CFPB) was formed in 2010 to protect consumers from unfair financial practices and to ensure more transparency.
I was not opposed to it, as I remember the extraordinary abuses by slimy loan officers prior to 2008. I still vividly remember, for example, the sobbing Hispanic women (who barely spoke English) who had been lied to by a loan officer about her interest rate and loan type (he told her that her “temporary start rate” was her actual interest rate) – and how she was forced to pay an $18,000 prepayment penalty (for a small loan) to get out of payments she could not begin to afford.
But those slimy loan officers and loans were shoved to the wayside by new regulations, so the CFPB had to search hard for abuses – and search they did.
CFPB Needed Scalps!!
After the 2008 meltdown and the massive foreclosure crisis, the public was out for blood – wanting to see the culprits punished.
But the true culprits (government, Fannie Mae, bond rating agencies, and large banks) were entirely ignored, as they had political power.
So, the CFPB (at the urging of politicians) set its sights on much smaller players who had no political power.
And they were vicious. There was no “explaining” anything like I did when I was audited, and they imposed massive fines on anyone and everyone for the slightest of infractions.
They did so even when no consumers were harmed, and when there was no intent to harm (“intent” is a clear tenet of all criminal law, but the CFPB ignore that).
Our own compliance attorneys were both shocked and appalled by the CFPB’s abuse, as the CFPB simply seemed hellbent on gathering scalps and fostering misery.
The CFPB also imposed numerous arbitrary rules and additional regulations that just made loans more expensive and difficult to close.
Sidebar: There is NO way any lender could close loans for only $3,000 like I did prior to 2008 because the cost to close a loan is over $10,000 today (largely due to unnecessary regulations).
The CFPB didn’t just go after mortgage firms too. They crushed small lenders of all types, including auto lenders. They also notoriously forced banks to “de-bank” individuals who had political views they didn’t like.
Bye, Bye CFPB
While the CFPB will remain, it will effectively be dismantled due to an enormous downsizing that was recently allowed by the courts. And given the CFPB’s abuses and lack of due process, this is a very good thing.
The dismantling will ironically likely help consumers, as loans will end up being less costly to close if lenders don’t have to worry about the CFPB’s excess regulations and heavy hand.
But – Who Will Regulate? Won’t Lenders Return to Pre-2008 Abuses?
There will still be plenty of regulatory muscle to keep lenders honest – and that too is a very good thing.
Active regulators include: (1) State regulators (that remain very active); (2) Housing and Urban Development (HUD); (3) FHFA/Fannie and Freddie; and (4) the many commercial bank regulators.
But there is one more extremely powerful regulator that was not nearly as active prior to 2008: The Internet.
If those pre-2008 slimeballs were around today, they would be buried in one-star reviews that would send even the most gullible of borrowers running.
Anyway, the CFPB will not be missed.
