As 2011 came to a close, mortgage companies faced an uncertain regulatory landscape, with challenges arising from increased compliance costs and significant changes to federal and state laws and regulations. Exacerbating those challenges, President Obama’s January 5 recess appointment of Richard Cordray as Director of the Consumer Financial Protection Bureau (CFPB) immediately vested the Bureau with profound regulatory powers that it did not enjoy without a Director in place. With that appointment, the compliance directive for mortgage companies is now clear: Devote greater resources to managing compliance or face enforcement pressure from multiple regulatory sources.
On the same day of Mr. Cordray’s appointment, the CFPB announced the launch of its Non-Depository Supervision Program. In explaining the program, Peggy Twohig and Steven Antonakes suggested that the CFPB’s intent is to expand its existing bank supervision plan to ensure “that banks and non-banks play by the same rules.” The CFPB suggests that “consistent supervisory coverage will help level the playing field for all industry participants to create a fairer marketplace for consumers and the responsible businesses that serve them.”
The extension of its supervision program to non-depository institutions will result in the CFPB’s examination of non-bank entities for compliance with federal laws, such as the Truth in Lending Act and the Equal Credit Opportunity Act. While this non-bank supervision process will even the playing field by ensuring that all companies conducting mortgage business are supervised by the CFPB, what appears to be forgotten is that state-licensed non-depository institutions are already subject to extensive examination by state regulatory agencies. As any state-licensed mortgage company understands, state regulatory agencies have extensive licensing and examination processes. As part of their examination and compliance review obligations, state examiners review mortgage companies for compliance with both federal and state laws and regulations. To the extent violations of state or federal laws occur, state regulatory agencies will take action against companies for violations of both state and federal law.
Thus, the CFPB’s supervision simply adds another level of oversight in an industry that has been reeling for some time due to the heavy weight of new laws and regulations.
CFPB examinations will likely be based on risk profiling of active participants in the mortgage space. The CFPB has stated that it will assess risk to consumers by considering various factors, including “volume of business, types of products or services, and the extent of state oversight.”
Because the CFPB has limited resources, it likely will focus upon larger mortgage lenders that operate in a significant number of jurisdictions. It is unlikely that the CFPB will devote a significant amount of resources to examining small mortgage brokers or modest correspondent lenders. It is important to note that, regardless of size, the CFPB may require non-depository institutions to prepare reports on their respective activities, which will allow it to better target its examination efforts.
The CFPB also will coordinate its actions with other federal and state regulatory agencies. In order to achieve cooperation with various state regulatory agencies, the CFPB, together with the Conference of State Bank Supervisors, developed a Memorandum of Understanding (MOU) that allows state regulatory agencies to share information with the CFPB. As of January 5, 2012, 42 states and Puerto Rico had agreed to the MOU.
Non-depository mortgage institutions should expect that their respective regulatory agencies will actively cooperate with the CFPB. State-licensed non-depository mortgage institutions also must be aware of their heightened regulatory scrutiny by their respective state regulatory agencies. Increasingly, state regulatory agencies are making use of ComplianceEase’s ComplianceAnalyzer software to evaluate loan-level compliance. In 2012, state-licensed institutions can expect a greater number of regulatory agencies to request that they submit loan file data for electronic review. Further, state regulatory agencies will continue to make use of their Multi-State Mortgage Examination process and it is more likely that larger state-licensed institutions will experience one of these examinations. The examinations likely will be more limited in scope than previously conducted multi-state examinations. However, decreasing the scope of multi-state examinations will provide increased resources to allow for a greater number of targeted examinations.
State-licensed mortgage companies should also expect significant changes to the Nationwide Mortgage Licensing System & Registry (NMLS) in 2012. During spring 2012, the NMLS will be updated to accommodate license types that do not apply to mortgage activities. For example, collection agencies, consumer loan companies, and debt settlement companies will be among the companies that could be licensed through the NMLS, if their respective regulators elect to participate in the system. Regulated institutions and individuals should be aware that the NMLS will now make certain compliance actions that mortgage companies entered into with regulatory agencies publicly available to consumers through the NMLS Consumer Access website.
In short, mortgage companies are counseled to devote greater resources to their mortgage compliance activities. Federal and state regulatory agencies are increasingly coordinating their efforts.
That coordination, which likely will continue to streamline the collective enforcement efforts of the regulatory agencies, coupled with technological advances available to regulatory agencies, presents a more challenging regulatory atmosphere for all industry participants in 2012.