CFPB: What It Means to You
In the wake of the ongoing real estate recession, the federal government has introduced a variety of measures designed to protect consumers and weed out unprofessional or predatory mortgage loan originators. One of these actions has been the creation of a new federal agency, the Consumer Financial Protection Bureau (CFPB).
The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act) established the CFPB, which was launched in July 2011. Here’s the mission statement of the CFPB: “The central mission of the Consumer Financial Protection Bureau (CFPB) is to make markets for consumer financial products and services work for Americans – whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products.”
The basic idea is to heighten government accountability by consolidating into one place a variety of responsibilities that had previously been scattered across various government entities. The CFPB is like a one-stop-shopping center for consumer financial affairs.
Let’s explore what this means to you, the mortgage lending professional, and to your clients. The CFPB’s activities cover three areas: to educate consumers; to enforce federal consumer finance laws; and to gather and analyze relevant information.
What the CFPB Can and Cannot Do
At this time, the CFPB only has the authority to enforce existing regulations that were previously under the control of other agencies. With one or two exceptions discussed below, there are no new CFPB-created laws or regulations that mortgage industry professionals need to learn about. There’s a political reason for this, which I’ll cover later in the article. The CFPB can only streamline existing functions and act as a clearinghouse for consumer complaints.
New Mortgage Disclosure Form
As required by federal law, consumers who apply for a mortgage loan receive two forms: a two-page Truth in Lending disclosure form and a three-page Good Faith Estimate. By informing consumers and allowing them to compare mortgage offers, the forms are supposed to help the consumer pick the mortgage product that’s best for them.
The two current forms have overlapping information and can be confusing to consumers. They also needlessly drive up costs and the regulatory burden on lenders. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which created the CFRB, mandated that the CFRB combine these two forms into one.
To this end, during the summer of 2011 the CFPB posted on its website two different mortgage loans using the same draft version of a new, simpler disclosure form. Consumers and MLOs are invited to comment.
MLOs can click on the “switch to the industry tool” icon to be taken to the page that features two prototype loan documents for a typical $121,000 loan. The samples (called “Jasmine” and “Nandina”) can be downloaded as pdfs. The prototype forms you can review are designed to combine both the Good Faith Estimate and the initial Truth in Lending disclosure, as mandated by the Dodd-Frank Act. You are invited to review the two loan estimates and choose the loan that you would recommend to your clients.
The CFPB promises that they will post drafts throughout the process, and give consumers and MLOs a quick, simple way to offer opinions on what works and what doesn’t. In the end, the new unified disclosure form will have to work for the consumers and lenders who rely on it every day.
Consumer Mortgage Counseling
For consumers facing foreclosure, the CFPB offers a website portal that helps the consumer get connected to a HUD-approved housing counselor. At no cost to the borrower, the counselor can help them work with their mortgage company to try to avoid foreclosure. The housing counselor will help the borrower organize their finances, understand their mortgage options, and hopefully find a work-out solution that works for them.
HUD provides an online list of foreclosure prevention resources arranged by state. Military members or veterans can call or visit the Veteran Administration’s home loan website to get personalized assistance.
The CFPB encourages at-risk homeowners to call and report foreclosure prevention and loan modification scammers who promise “guaranteed” or “immediate” relief from foreclosure, and who might charge very high fees for little or no services.
For low-income consumers who think they may need legal advice, the CFPB provides a link to the website of the Legal Services Corporation. The LSC is an independent 501(c)(3) nonprofit corporation that promotes equal access to justice and provides grants for high-quality civil legal assistance to low-income Americans. The LSC website features a state-by-state directory of organizations offering consumer legal services.
Regulating Mortgage Loan Servicers
Consumer advocates assert that unscrupulous loan servicers do not keep accurate records of ownership payments and escrow accounts, and then falsify court documents to move foreclosures forward. The CFPB can require that companies who collect mortgage payments do not charge illegal fees or enroll a homeowner in overpriced insurance plans, keep accurate records of what the borrower owes, and do not either deliberately or accidentally push a homeowner into foreclosure.
So far, the impact of the creation of the CFPB has created more political fireworks than tangible change to the professional lives of mortgage loan originators and consumers.
Most people know the CFPB as the brainchild of Elizabeth Warren. She is a Harvard law professor who served as chair of the Congressional Oversight Panel, which was created to oversee the U.S. banking bailout (known as the Troubled Assets Relief Program, or TARP). She later served as assistant to the president and special advisor to the secretary of the treasury for the CFPB, was a driving force behind the creation of CFPB, and as the special advisor she worked on implementation of the CFPB.
The CFPB has become a political football. In part because it is one of the strongest provisions of Dodd-Frank, the CFPB has been vigorously opposed by Republicans in Congress. Representative Jeb Hensarling (R-TX) called it “one of the greatest assaults on economic liberty in my lifetime,” while Representative Spencer Bachus (R-AL) said the CFPB was shaping up to be “the most powerful agency ever created.” Three times in one week in March the Wall Street Journal opinion page denounced Warren and the CFRB; this was four months before the agency opened its doors for business.
On May 13, 2011, the House Financial Services Committee passed three bills designed to weaken the CFPB. Freshman Representative Sean Duffy (R-WI) denounced the CFPB as a rogue agency with an authoritarian structure and introduced legislation to give existing banking regulators greater authority to override the bureau’s new rules. Other bills passed by the committee sought to prevent the bureau from assuming power until the Senate confirms a director, and to change the structure of the bureau from a single director to a bipartisan commission.
Forty-four Senate Republicans announced they would not approve any nominee for the CFPB unless the GOP restructuring proposals were implemented.
Republican legislators take the position that the CFPB has the potential to become a powerful federal regulatory agency that exists beyond the direct control of Congress. In a statement released by his office in April 2011, Representative Duffy said, “This new agency has broad, far-reaching powers and these powers are all assigned to one individual, who is a political designee. I believe in the system of checks and balances, and I also believe that consumers deserve a financial system that is safe, sound and accountable.” Democrats take a more benign view and point to the presumed benefits that the CFPB will bring to consumers and the lending industry.
In response to Republican actions, the White House Office of Management and Budget issued a statement of administration policy saying that President Obama would veto Representative Duffy’s legislation, which is called the “Consumer Financial Protection Safety and Soundness Improvement Act,” or House Resolution 1315, if it were sent to the president for his signature.
White House officials say they object to provisions that would change the leadership structure of the CFPB from a single director to a five-person commission; delay the transfer of certain consumer financial protection responsibilities from seven other agencies to the CFPB; and add additional congressional oversight provisions to the CFPB.
The Future of CFPB
Ordinarily, someone like Elizabeth Warren might have been a logical choice to become the director of the agency. But in the face of Republican opposition, President Obama chose not to nominate her to run the CFRB. The president instead nominated former Ohio Attorney General Richard Cordray for the post, and his nomination faces stiff Republican opposition.
Congressional Republicans know that until the CFPB has a confirmed director in place, the agency is restricted to enforcing existing consumer protection regulations and would not be expected to propose any new rules.
What should you do? If you want to take part in the CFPB’s effort to consolidate the two different mortgage loan forms into one simpler disclosure form, log onto to CFPB website and cast your vote. Then stay tuned for further developments from Washington!