Politics & MoneyMortgage

CFPB to credit unions: New mortgage regulations level the lending playing field

TRID is good news

After the financial crisis, the government unleashed a wave of new regulation to ensure that it will never happen again, a move that left credit unions constantly fighting to make sure they don’t drown in the aftermath.

Both the government and credit unions agree that they didn’t fuel the financial crisis, but that doesn’t mean they are exempt from all the new rules coming out.

The government worked uniquely with credit unions to try and tailor some rules to them, but there’s disagreement on exactly how helpful the government has been.

Speaking to the National Association of Federal Credit Unions, Consumer Financial Protection Bureau Director Richard Cordray laid out what came off as a persuasive speech convincing credit unions about all the things the bureau does for credit unions.

Cordray opens up the dialogue with things we have heard time and time again from the CFPB.

Credit unions often note that they made consumer protection their first priority long before the Consumer Bureau was born. We agree that you did not cause the financial crisis and performed well during that very difficult period in our country’s economic history. For that reason, we have regularly taken a close look at how credit unions operate and we have worked to accommodate the specific needs of smaller financial institutions. And we will continue to do so.

But it is his statements after this that come across as the CFPB trying to convince credit unions that they’re on the same page, an idea that credit unions not too long ago rebutted.

Back in March of this year before the Housing Financial Services Committee in Cordray’s semi-annual update, Cordray used credit unions as an example of a clear benefactor to the CFPB’s regulation. Cordray used this example after a peculiar moment when Rep. Steven Stivers (R-Ohio) passed along his progeny’s t-shirt, which is in a toddler’s size, to Cordray to try on in order to exemplify restrictive regulatory burden.

And yet right before the update, NAFCU President and CEO Dan Berger sent a letter to House Financial Services Committee Chairman Jeb Hensarling (R-Texas) saying, "Unfortunately, many of our concerns about the increased regulatory burdens that credit unions would face under the CFPB have proven true."

"As expected, the breadth and pace of the CFPB’s rulemaking is troublesome, and the unprecedented new compliance burden placed on credit unions has been immense," the letter added.

Cordray, disagreeing, said press releases from credit union trade groups often don't reflect economic facts.

“Credit union membership hit an all-time high,” during this semiannual timeframe, Cordray told Stivers. This data “is not consistent with ‘killing the credit unions’,” Cordray added.

The NAFCU rebuts that Cordray is the one who is flinging inaccuracies.

“The assertion that credit unions are not being negatively affected by the tidal wave of overregulation arising from CFPB and Dodd-Frank could not be more wrong,” Berger said. “Director Cordray’s denial that the tide of regulation is not contributing to the continued trend of credit unions being forced to cut back on member services, merge or go out of business flies in the face of facts.”

So now, more than half a year later, Cordray is directly in front of NAFCU bringing the debate back up.

His new angle on the debate is mostly him telling them that they’re too busy focusing on the negative instead of seeing the positive things the bureau has done.

Cordray stated in his speech to NAFCU that it is notable that credit unions are thriving, with their share of mortgage lending actually growing.  In fact, he added that credit unions originated 39% more home purchase mortgages in the first nine months of 2015 than they did for the same period of 2014, according to recent data.

But it’s his next comment after that stands out.

“Let me pause to let that sink in,” Cordray said.

He continued to state:

That is good news for you and for consumers. It means more opportunity for more consumers, and a wider path to the American dream in a mortgage market made stronger by the changes we made.

Many credit unions have focused on the compliance burdens of the new rules. But they have overlooked the positive benefits of the rules. A safer mortgage market that does not allow “no-doc” loans, or loans that can be underwritten over misleading teaser rates, is a market that presents more favorable ground for responsible lenders like credit unions.

Cordray goes on to say “When bad practices are rooted out, good practices are able to thrive, freed from the unfair competition of a race to the bottom.”

So the positive credit unions need to see: they now have less competition.

“As the consumer bureau is building out a vigorous supervision program over non-bank mortgage lenders and mortgage servicers, you are being put on a level playing field with your competitors for the first time ever,” he said.

In essence, you're welcome credit unions. 

Here are a few areas that Cordray spotlights on how the bureau has helped:

  • Based on your input, for example, we revisited our mortgage rules to broaden the definitions of “small creditor” and “rural area.”
  • We expanded the definition of “rural.” Many of you told us our definition was too narrow, so we took another look.
  • Up front, you told us Know Before You Owe required major operational changes and extensive coordination with third parties, and in the end we allowed almost two years for implementation. Even so, we saw that the transition was difficult and we understood that you were just trying to get it right. So we worked with NCUA to make it clear that early evaluations for compliance will be corrective and diagnostic, not punitive.

Cordray concludes his speech trying to get everyone back on the same page, saying, “It has been said that cooperation is the most effective form of creation. So we ask you to continue to cooperate with us to address the financial issues that play such pivotal roles in the lives of consumers.”

Even though credit unions and the CFPB focus on what’s best for the consumer, NAFUC is getting the short end of the stick. 

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