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Monday Morning Cup of Coffee: Industry trade groups tell Senate how to fix financial regulations

MBA, CUNA weigh in on regulatory reforms

April 17, 2017

Monday Morning Cup of Coffee takes a look at news coming across HousingWire’s weekend desk, with more coverage to come on larger issues.

The main front for the Republican Party’s push for regulatory reform is in the House of Representatives, where House Financial Services Committee Chairman Rep. Jeb Hensarling, R-Texas, is leading an effort to replace the Dodd-Frank Wall Street Reform Act with the Financial CHOICE Act.  

Last week, a newly released memo showed some of the major changes to the country’s financial regulatory system that could be put in place if the Financial CHOICE Act is passed.

Included among those proposed changes are significant alterations to the structure and mission of the Consumer Financial Protection Bureau.

But the House isn’t the only place where regulatory reform is under consideration.

Late last week, both the Mortgage Bankers Association and the Credit Union National Association sent letters to the leadership of the Senate Banking Committee.

The purpose of the letters is to answer a request from Senate Banking Committee Chairman Sen. Mike Crapo, R-Idaho, and Senate Banking Committee Ranking Member Sen. Sherrod Brown, D-Ohio, for a “proposal for economic growth.”

Each group’s letter touches on a number of regulatory reform measures that would affect the mortgage business, including several CFPB rules and procedures.

“The current regulatory environment has increased costs and forced many responsible mortgage bankers to limit lending. This most often harms low-to-moderate income borrowers, minorities, and first-time homebuyers,” the MBA said in its letter to Crapo and Brown.

“We urge the Committee to do a thorough review of current rules and regulations and make adjustments where necessary in order to balance the need for consumer protection while ensuring access to safe, sustainable mortgage credit,” the MBA continues.

“In this regard, we strongly urge that particular attention be given to simplifying rules, providing greater clarity and certainty, and mitigating supervisory burdens,” the MBA adds. “These goals are particularly important for smaller, community lenders that may not be able to sustain excessive compliance and legal infrastructures.”

One area where the MBA feels regulatory reform is needed is in the way the CFPB operates from an oversight standpoint. From the MBA letter:

The Consumer Financial Protection Bureau's (CFPB) use of consent decrees and administrative decisions to make changes in the rules, rather than formal rulemaking or published guidance, has created uncertainty in the market and higher costs for consumers. MBA believes the CFPB, when implementing new rules or changing the interpretation of existing rules, should adopt clear "rules of the road" through the issuance of official, written interpretative rules, supervisory guidance and/or compliance bulletins to facilitate regulatory certainty and consistent consumer protections throughout the market.

The MBA notes that over the past five years, the costs of originating a mortgage loan “have increased and HMDA data indicate the total number of lenders has declined.”

The MBA also notes that large institutions reduced their participation in the mortgage market in recent years. A case in point is Citigroup, which is exiting mortgage servicing entirely and recently saw mortgage originations drop significantly.

“This ultimately impacts the American consumer, driving up the cost of credit, delaying closings, as well as limiting borrowers’ choices due to reduced market competition,” the MBA said. “Increasing regulatory clarity will allow lenders to operate under clear guidance and decrease costs for lenders and consumers alike.”

To address these issues, the MBA specifically asks for the following changes:

Congress should require the CFPB to establish and abide by a consistent framework for providing industry with authoritative written guidance that facilitates efficient compliance, reduces implementation costs, and ensures consistent consumer treatment across the market. That framework should:

  • For existing rules, require rulemaking or, where appropriate, written guidance (prospectively applied) if the CFPB is making a change in prior rules or guidance (whether formal or informal).
  • For significant new rules, require the CFPB to comprehensively evaluate implementation and dedicate resources to providing written guidance or amendments to the rule to address post-rule contingencies, unintended consequences, or other infirmities in the rule.

The MBA also calls for changes to the Ability to Repay and Qualified Mortgage rules.

Here’s the MBA on those rules:

The Dodd-Frank Act and the CFPB’s Ability to Repay (ATR) rule requires lenders to determine whether a borrower has a reasonable ability to repay a mortgage before the loan is consummated. This obligation is coupled with significant penalties and liability for failing to meet this requirement. The ATR rule also provides a presumption of compliance for loans that are originated as Qualified Mortgages (QMs), which provides greater certainty to lenders and mortgage investors regarding potential liability where there has been compliance but a claim is made.

Consequently, most lenders have limited themselves to making only QM safe harbor loans to minimize potential liability and litigation. The ATR rule and QM standards must be improved to responsibly widen the credit box. While MBA appreciates some earlier efforts to address flaws in the QM definition, we believe changes to the ATR rule should not be confined to particular types of institutions or business models. The QM definition should be fixed holistically, not revised in piecemeal fashion with special exceptions for certain categories of lenders.

In the eyes of the MBA, the Ability to Repay and Qualified Mortgage rules have a “negative impact on potential first-time homebuyers and those with lower incomes and less wealth, denying these households the ability to access homeownership and its wealth-building potential.”

To address these issues, the MBA calls for an expansion of the Safe Harbor provisions as well as several other changes. Click here to read the MBA’s letter in full.

CUNA’s letter, on the other hand, calls for different changes to the CFPB’s rules, including “enhancing” the CFPB’s exemption authority to fully exempt credit unions from any of its rulemakings.

CUNA also asks for “parity” in the treatment of loans for 1-4 unit, non-owner-occupied residential properties.

Currently, when a bank makes a loan for this type of property, the loan is classified as a residential real estate loan, CUNA said in its letter.

When a credit union makes the same loan, it is required to be classified as a business loan, and is therefore subject to the statutory member business lending cap, and CUNA wants that to change.

“Correcting this disparity would provide economic growth in two ways. First, it would enable credit unions to provide additional credit to borrowers seeking to purchase residential units and help stimulate investment in affordable rental real estate and employment in the construction trades,” CUNA said in its letter. “Further, changing the statutory classification of these loans would free up as much as $4 billion in business lending cap space, allowing credit unions to more fully serve their small business members.”

Click here to read CUNA’s letter in full.

The MBA and CUNA weren’t the only organizations that sent letters to the Senate Banking Committee last week.

The National Association of Federally-Insured Credit Unions also sent a letter to Crapo and Brown, which echoed much of what CUNA said its letter.

To read more about NAFCU’s letter to Crapo and Brown, click here for coverage by our own Brena Swanson.

In other news, Walter Investment Management Corp. announced on Friday that it named John Haas as the company’s new general counsel, chief legal officer and secretary of the company.

Haas joined Walter in June of 2014 as assistant general counsel and most recently served as acting general counsel and chief legal officer.

According to Walter Investment’s CEO, Anthony Renzi, Haas’ contributions to the company thus far helped the nonbank through a time of significant transition.

In just the last 18 months or so, Walter Investment had four different CEOs.

Renzi took over at Walter Investment in September 2016, replacing George Awad, who replaced Denmar Dixon, who took over for Mark O’Brien.

Earlier in 2016, Walter Investment announced that Denmar Dixon resigned as CEO and vice chairman of the company after serving in the role for only eight months.

Dixon took on the role of CEO in October 2015 after Mark O’Brien, the company's former chairman and CEO, announced his retirement.

After Dixon left, Walter Investment chose George Awad to fill in as executive chairman and interim CEO while the company’s board searched for a permanent CEO.

Then the company chose Renzi, who most recently served as the chief operating officer, managing director and head of operations for Citigroup's North America retail bank, commercial bank and CitiMortgage, as its permanent CEO back in August.

Haas brings more than 15 years of experience practicing corporate and securities law and working in finance to his newly official role at the company.

Before joining Walter, Haas was most recently of counsel for Foley & Lardner in the firm’s private equity and venture capital group. Haas also served as executive director, global capital solutions for UBS AG and began his career as a corporate attorney at Skadden, Arps, Slate, Meagher & Flom.

And with that, have a great week everyone!

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