Mortgage industry braces for seven new CFPB rules
Mortgage Bankers Association Chief Executive Officer David Stevens has a rich history in the mortgage finance space.
He vividly remembers overseeing the painful rollout of a new rule linked to the Real Estate Settlement Procedures Act during his time as Commissioner of the Federal Housing Administration.
"I finally implemented it to screams and cries of anguish," he remembers.
But at the time, the industry was dealing with just one rule, and it took five years to write and a significant block of time to implement.
Just this month alone, Stevens faces the planned release of seven new mortgage/servicing rules from the Consumer Financial Protection Bureau. The final rules will not have to be implemented right away, but the mortgage industry is still unsure if the market will get implementation extensions past 12 months if needed.
Among the new rules is the qualified mortgage (ability-to-pay) rule, a provision related to high-cost mortgages, a rule impacting loan officer compensation, new servicing standards, an escrow rule about impounding accounts and tax insurance, an appraisal disclosure rule and another appraisal guideline related to high-cost mortgages, Stevens said.
Stevens met the New Year with some optimism with the fiscal cliff compromise delivering good news about the extension of the Mortgage Debt Forgiveness Act and tax benefits for homeowners with private mortgage insurance. Still, the mortgage interest tax deduction was not part of the deal and could resurface as a bargaining chip in later deficit discussions.
"I didn't expect the mortgage interest deduction to be in the fiscal cliff deal," Stevens said. "I do expect it to be part of the overall debate on the debt ceiling and on deficit reduction."
But until Congress highlights that issue again, Stevens is focused on the qualified mortgage rule, which could be released in the next week or two.
"It is going to set the (mortgage) underwriting standards in place, how you define ability to repay," Stevens said.
From that point on, the rule will essentially force the industry to tweak its systems impacting mortgage companies, title companies, settlement companies and most players in the mortgage finance space. "The thing I worry about the most is change management," Stevens explained. He wonders how much time and how long it will take for the QM to seamlessly be adopted into the system.
Edward Kramer, executive vice president of regulatory affairs for Wolters Kluwer Financial Services, said, "Everyone has some sense of what is coming out. Most institutions have had a chance to attempt to add staff – adding to compliance."
Kramer noted that after the QM standard is released, the industry still has to focus on the qualified residential mortgage (risk-retention rule) and its impact on mortgage lending and the secondary market.
Both Stevens and Kramer say the industry has been gearing up, with certain rules not expected to cause as much impact, while QM remains a big mystery. Setting up systems to comply with QM is a big concern.
"Some of my colleagues and I at Wolters Kluwer are seeing the only way to survive in the future is to embrace technology. Now the greatest burden is not just on compliance folks; it's also on technology folks," Kramer said.
On the QM rule, Stevens and Kramer hope pragmatism will win out, causing the CFPB to create a lending safe-harbor provision. Their main concern is ensuring the final roll-out of rules does not hinder the broader housing recovery.
"Everyone knows they have to gear up," Kramer said. "It is an enormous burden for the industry."
Stevens sees January 2013 as the beginning of an unprecedented time in mortgage lending.
"The victim of this will be the housing recovery if it is not done properly," Stevens said. He is concerned about what's in the rules, how much time companies have to implement them and in what ways do they conflict with each other.
Those questions will not be answered until the industry sees the final drafts they've been waiting months for.