Last week in New York I asked an official with the Consumer Financial Protection Bureau (CFPB) roughly how many employees this new bureau has.
His reply: 900.
Nine-hundred??!! The CFPB already has 10x the employees that GNMA has (granted, Ginnie has always had the reputation as having the most billions per employee).
The business is still ruminating on the CFPB’s new rulemaking proposals from last Thursday that not only change compensation to a flat rate but would require background checks for mortgage originators and complement a previous rule that prohibits loan officers from steering borrowers to higher-priced products. But the intentions are good.
Best I can tell, the consensus around the country is that the CFPB is the judge, jury, and executioner.
Cottage industries have sprung up around the agency itself, either interpreting its actions, its 800+ page examination manual, in preparing for its audits (I have the impression everyone will be audited at some point, banks and non-depository mortgage banks alike), and so on. CFPB Director Richard Cordray said in a statement:
We want to bring greater transparency to the market so consumers can clearly see their options and choose the loan that is right for them.
This is a noble goal to which few will disagree. But there is general agreement that this agency knows no bounds, and although it began with the easy targets of credit cards, student & auto loans, and residential lending, there are rumors of expanding to nearly every event that touches a consumer or money. And what in our economy doesn’t? Enforcement officers accompany auditors and one mortgage company owner wrote to me saying:
Are we guilty until proven innocent? Where is my copy of George Orwell’s 1984?
The bureau operates under its jurisdiction under the Dodd-Frank Act, which calls for measures to do away with longtime practices seen as deceptive and unfair.
Once again, this is very reasonable but to whom does the CFPB report?
The new comp proposals stirred up the industry again. If they take effect, the new rules would add to a list of measures related to the financial reform law that aim to refashion the way the mortgage industry packages and sells home loans to borrowers. One would supplement an earlier rule finalized by the Federal Reserve last April that prohibits mortgage loan originators from receiving dual compensation, effectively tying off any financial incentives from a loan product’s term and conditions or in instances where loan officers receive payments directly from borrowers.
In addition to new background checks for mortgage brokerages and companies, the rules would also obligate LO’s to print their license and registration numbers on documents – not a bad thing in itself, but…
The next seven months will be a busy time for the CFPB, given what must be finalized by January 2013. It appears that we can expect the rule-making process, consisting of the issuance of a formal proposal, a comment period, and then the issuance of a final rule to take place on a tight timeline.
And in the various state-based MBA groups which I’ve visited this year, there is definitely a “call to action” about having the industry’s voice heard.
[Take a deep breath before reading]
Anytime an agency is weighing prohibiting upfront points and fees except for discount points which result in a minimum reduction of the interest rate and origination points which are flat and do not vary with loan amount, sunsetting the limited exceptions under consideration to eliminate upfront points and fees altogether in transactions with creditor-paid loan originator compensation, Interpreting the prohibition of dual compensation consistent with the Federal Reserve Board’s earlier loan originator compensation rule in order to allow salaries or wages to be paid to individual employees of brokerages, implementing the prohibition of compensation based on terms or conditions of a loan (other than loan amount) in transaction for which compensation is consumer-paid, clarifying which contributions or payments by employers based on company profits are permissible, setting standards for TILA, ECOA, and GFE documents, allowing mortgage loan originators to make certain pricing concessions to cover unanticipated increases in their-party settlement charges under certain circumstances, clarifying that point banks are considered “compensation” and are permitted only if the amount of the contribution by the creditor for a given transaction is not based on the transaction’s terms or conditions, and the creditor contribution is fixed over time, providing a test to determine whether a factor is a “proxy” for a loan term, requiring criminal background checks to screen for felony convictions, requiring training to ensure a knowledge regarding types of loans originated, and establishing the entire set of QM guidelines, it is time to take notice.
Here’s one example of the decision making: the CFPB’s Small Business Review Panel process.