CFPB’s Chopra has answers on appraisals, mortgage servicers, credit scoring

CFPB director is in talks with FHFA on medical debt in the mortgage origination process

Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra provided updates on the watchdog agency’s housing-related priorities in testimony before the Senate Banking Committee.

Chopra said the CFPB would still be watching mortgage servicers, as it has repeatedly promised, to make sure they are not “cutting corners.” The watchdog agency will also be working with other federal agencies to intervene in policies and regulation that could impact mortgage lenders and residential appraisers.

Mortgage servicers have been a special area of focus for the CFPB under Chopra, but the agency has been scrutinizing them more closely over the past year. In warnings to the sector, the CFPB has told mortgage servicers it will not be giving them lenient treatment.

Last June, the CFPB provided servicers with extensive guidelines to help borrowers navigate the end of forbearance. Last November, the agency, in a joint action with federal banking regulators, said it would resume all of its normal oversight of mortgage servicers.

Chopra has also drawn attention to past misdeeds of mortgage servicers in the mortgage-fueled meltdown — now more than a decade ago — in explaining the CFPB’s stance toward servicers now. In testimony on Tuesday, Chopra said that consumers “don’t get to choose” their servicer, and then they are “stuck with them.”

“We depend on servicers, whether it’s in the mortgage context, student loan context and others, to make sure they’re truthful about what borrowers’ options are, particularly when they get in trouble,” Chopra said. “Servicers should not be deceiving borrowers about alternatives to default, and should actually be helping them stay on the road to repayment.”

What opportunities do lenders miss out on by not focusing on credit

HousingWire recently spoke to Mike Darne, Vice President of Marketing for CreditXpert, who said focusing first on the borrower’s credit holds the key to winning business that other lenders won’t even see.

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Chopra has in the past raised concerns about algorithmic bias in credit decisions, calling the proprietary models “black-box” algorithms.

“So many lenders are quite dependent on algorithms that help predict creditworthiness,” Chopra said. “A lot of creditors are worried that they are not able to give a good explanation to borrowers who they might have given adverse terms to or denied as to why.”

The CFPB — which supervises nonbank mortgage lenders and servicers — is also in discussions with the Federal Housing Finance Agency as it considers updating credit scoring models the bulk of the mortgage market relies on, Chopra said. The FHFA is reaching the end of a multi-year process to determine whether Fannie Mae and Freddie Mac can use credit scoring models that factor in alternative data.

“Yes, we are in discussions with the FHFA about how they should think about medical debt in the mortgage origination process,” Chopra said. “It is the number one collections item now on people’s credit reports. Many people just feel coerced into paying something they don’t owe when they’re applying for a mortgage or job or an apartment.”

In April, the CFPB sued credit reporting agency TransUnion and one of its executives for allegedly tricking consumers into signing up for credit score monitoring, and for claiming alternative credit scoring models are widely used in mortgage lending.

TransUnion is one of the three credit bureaus, together with Experian and Equifax, whose joint venture VantageScore Solutions is vying for approval from the FHFA for use by Fannie Mae and Freddie Mac.

Chopra also said the CFPB would weigh in on a joint rulemaking with other regulators that will take a hard look at automated valuation models and make sure they account for potential discriminatory effects. Automated valuation models rely in large part on past sales, which would include valuations impacted by past racist housing policies.

“Congress authorized regulators to make sure that so called Automated Valuation models have adequate controls for safety and soundness for consumers, and whether models are accurately looking at potential discriminatory effects,” Chopra said. “That process is ongoing, and we are working with the regulators on potential proposals that we would jointly propose.”

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