Complex interactions between state and federal regulations and the conflicts that often arise make the difficult job of mortgage finance and servicing all the more difficult.
But there are steps firms can take when they find themselves in the regulatory crosshairs.
That was the central theme at one of the sessions at MBA Servicing 2015 at the Gaylord Texan, the second full day of the conference.
The panel discussed how conflicting regulatory requirements affect servicers and offers thoughts on how to structure operations to minimize these effects.
Looking at the overlapping state and federal regulatory webs, Joe Jacquot, a partner at Foley & Lardner, quoted Jamie Dimon, CEO of JPMorgan Chase.
“In the old days, you dealt with one regulator when you had an issue, maybe two,” he quoted Dimon as saying. “Now it’s five or six. It makes it very difficult and very complicated. You all should ask the question about how American that is. And how fair that is. And how complex that is for companies.”
Well, because of federalism, it’s very American, Jacquot said.
“Overlapping enforcement is going to happen,” he said.
Mentioning first the federal regulatory perspective, turned mainly to the universe of state attorneys general, and how they approach Unfair and Deceptive Acts and Practices, where even failure to act can be in violation of the myriad state interpretations of UDAP.
Maria Moskver, chief compliance officer and general counsel for the Walz Group, said that another challenge for mortgage servicers and others is that state and federal regulations are continuing to evolve half a decade after Dodd-Frank was enacted.
“The CFPB is continuing to refine regulations,” Mosker said. “There are amendments to the rule and a constantly shifting landscape in terms of complying with them. And the state regulators are continuing to exercise their powers on Dodd-Frank.”
Every state has a consumer protection law that prohibits deceptive practices, and many prohibit unfair or unconscionable practices as well.
In billions of transactions annually, UDAP statutes provide the main protection to consumers, but the enforcement by state attorneys general – who are motivated by policy and politics and aren’t as involved in the mortgage industry as specific federal regulators – can be uneven.
Jacquot said that if an AG comes knocking on CFPB rule, the first step is to be responsible.
“They are unlikely to know your business. They are not in the weeds in the mortgage servicing world,” he said.
And their triggers can be divergent: consumer complaints, adverse media, plaintiff’s bar, and federal agencies.
Jacquot said to answer their initial inquiries, therefore, with more than is asked because firm’s can provide context that the AG may lack.
“Second, be firm in your position. Don’t unnecessarily ratchet up public rhetoric. AGs have public microphone can go tit for tat with you. State AGs can do this in ways federal regulators would never do it – they are motivated by policy, by politics and personal profile,” Jacquot said.
He said working with the AG, firms can influence how public the issue becomes and work to resolve it quietly and to the benefit of all parties.
“Be mindful of the end game,” he said. “You want to put the company in a position to have ongoing dialog with AGs. But be aware of information to AGs can in some states be made public immediately after action regardless of whether trade secret or proprietary,” he said.
Bottom line, Jacquote said: “Their motivation in most cases, unfortunately, in a lot of cases just to win. Turn that desire to win into a win-win solution to extract your company from that situation.”
Justin Wiseman, director of loan administration for the Mortgage Bankers Association, added that if a state AG shows up at the door, bet on the fact that the Consumer Financial Protection Bureau won’t be too far behind.
“And vice versa,” Wiseman said.