The Consumer Financial Protection Bureau will be ready to be the mortgage industry's top cop by the time it opens shop this summer, according to the person most likely to lead the charge.
Elizabeth Warren, the special adviser to the Treasury Department, spoke Wednesday before the House subcommittee on financial institutions and consumer credit. She said the agency is still gearing up and setting the parameters of its jurisdiction as it nears the July 21 opening. The CFPB is currently coordinating with state and federal regulators to set up regular examinations of mortgage servicers, including these companies in the agency's oversight of the entire mortgage market.
Warren brushed off criticisms in the opening, especially concerning questions on her abilities to fairly and evenly apply the rule of regulation to mortgage servicers. She added that the CFPB would not participate in any such regulatory initiatives today, such as a proposal by the state attorneys general, but rather would hit the ground running when their doors open.
"I came to Washington because Congress asked me here," she said.
There has not yet been a director appointed for the agency, but Warren said a nomination will be coming from the White House soon. Representative Spencer Bachus (R-Ala.), chair of the House Financial Services Committee said that he expects Warren to get the nod.
While the CFPB takes on the responsibility of overseeing transparency and enforcing predatory lending across all financial products from credit cards to auto loans, its toughest beat will be the mortgage industry. Specifically, Warren pointed out recent problems in the mortgage servicing industry that have sparked the need for more regular examinations of their procedures.
"Recent revelations of mortgage servicers’ haphazard and questionable practices have further demonstrated the need for a new cop on the beat," Warren said. "Notably, Congress authorized the CFPB to be the first federal agency with the authority to monitor and regulate all major mortgage servicers, including both bank and non-bank companies." Warren said the first point of business for the CFPB will be to combine the compliance forms in the Truth in Lending Act and Real Estate Settlement Procedures Act.
Warren said although they have advised the Department of Justice and the attorneys general pursuing a settlement in the mortgage servicing investigation, she remained adamant that the CFPB is not involved in any way with negotiations.
Still, many on the subcommittee called into question the agency's power. Ed Royce (R-Calif.) said the CFPB operates outside of any oversight and that he was concerned the agency may never be held accountable for its actions, without appropriations.
"Haven't we tried this before with the GSEs?" he asked.
Warren addressed his point, clarifying that the Financial Stability Oversight Council, which includes the Office of the Comptroller of the Currency, the Federal Reserve and others, can override any ruling made by the agency with a two-third vote. She also pointed out that because the CFPB does not set its own budget and has to go to Congress for any additional funding needed, it will be subject to vast oversight.
"In these two critical respects, the consumer agency is not the strongest government agency. It is the most constrained and most accountable of any agency," Warren said.
But she added that while it may be constrained financially, the CFPB's oversight of the mortgage market, specifically writing new rules that require lenders to disclose clearly and plainly the risks and terms of a mortgage, will prove to be a necessity for a safe market going forward.
"Mortgages that promised investors huge profits for low risks were the raw material of the securities that contributed to the near collapse of the worldwide economy. Irresponsible lending that encouraged people to buy homes with no realistic hope of ever paying off their loans has now led millions of families into foreclosure and bankruptcy," Warren said. "If there had been just a few basic rules and a cop on the beat to enforce them, we could have avoided or minimized the greatest economic catastrophe since the Great Depression. In the future, the new consumer bureau will be that cop."
Jacob Gaffney contributed to this report.
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