As the former director of the Consumer Financial Protection Bureau, Richard Cordray was charged with ensuring that the unfair and deceptive lending practices that resulted in the financial crisis would never happen again. Now, after more than a decade since the Great Recession, the mortgage industry is once again facing mortgage delinquencies that could reach 2008 delinquency levels.
In this Q&A with HousingWire, Cordray touches on what his biggest concerns are right now with the increase in forbearance requests, along with the messaging that the industry needs to be delivering during this time. He also comments on a possible foreshadowing of what’s to come in regard to consumer challenges across the country.
HousingWire: What are some of your biggest concerns as you see servicers helping people through this forbearance period?
Richard Cordray: I have a lot of concerns. Number one, this has been a very fast and precipitous decline in the economy, so there are a lot of people who are falling behind on their mortgage payments.
The concern is: Will they fall into foreclosure, will we have another tangled mess on our hands, or will they get forbearance that the CARES Act entitles? About 64% of the market or so is entitled to forbearance under the CARES Act, but will servicers perform well enough to make sure that people get their rights carried out here? That’s not terribly clear.
Second, if there is a continued spike in forbearance, and I think there will be, what’s that mean for the mortgage market? Will some of those servicers be able to stay afloat if they’re not getting the payments they anticipate? Will they have enough capital to carry through? There are efforts underway federally to provide financing for the servicers, but it may not be enough for some.
HW: When it comes to the messaging the government is putting out for lenders and servicers, is there anything would you do differently or emphasize?
RC: I think messaging to the public and to homeowners has to be sustained, clear and repetitive because it’s very hard for people inside the bubble of lawmaking and rulemaking and part of the compliance culture to appreciate just how dim the perspective from Washington is for the average consumer in neighborhoods around the country. Knowing what their rights are, knowing what kind of relief they’re entitled to, how to get their relief and what kind of processes they need to go through is really important for consumers. But it’s difficult to communicate those messages clearly from Washington
HW: Have you seen an increase in coronavirus-related complaints in the [CFPB] database and how do you think these complaints will play a part in enforcement actions? What should lenders keep in mind if there is an increase?
RC: The great thing about the consumer complaint database is it’s very sensitive to the needs and challenges facing consumers around the country. When things change for consumers, you start to hear about it pretty quickly through the complaint mechanism. Right now, I am starting to hear from within the bureau that there’s starting to be a real surge in complaints around COVID issues, and the effect of the current crisis on consumers around the country. It provides a kind of sensitive diagnostic of what’s going on with consumers in different communities around the country.
HW: What is something lenders aren’t focused on right now that you think they should be focused on?
Richard Cordray: I think there’s much more focus today than there was 12 years ago on the importance of trying to avoid foreclosure as a last resort. Twelve years ago, foreclosure seemed to many people like an easy resort, and they talked themselves into making a lot of irresponsible loans on the theory that you could always foreclose on the property and get your money back.
What we found is that in the crisis, if there’s a heavy volume of foreclosures, they go into the court system, the court system gets backed up and it becomes quite a significant legal tangle, and there’s nothing fast or easy about it. Some of this is required by law now, and some of it is just sensible practice by hand.
We’re trying to keep homeowners in some sort of modified version of their loans to try to keep from ousting them from the home, and again, whether that approach can survive the magnitude of the current crisis or not is something that remains to be seen.
HW: Many states have stood up their own mini CFPBs. What does this mean when federal oversight increases?
RC: Actually most states have not done that. I would say that California is proposing to do it and that would be the most far-ranging of the proposals, and New York has a pretty significant regulatory presence, but other states less so.
I think that states do have a significant role that they can play, and in this crisis, governors and attorneys general have stepped up and played their role to some degree with different orders that protect consumers in their jurisdictions. We’re seeing more of this work moved to the states because the federal CFPB has kind of retreated from the area of being an aggressive financial regulator and protector of consumers.
HW: What do you think are the biggest takeaways from your book “Watchdog: How Protecting Consumers Can Save Our Families, Our Economy, and Our Democracy” for people in the mortgage industry?
RC: It was the mortgage market that broke down and caused the financial crisis in 2008. Coming out of that, it was inevitable that there was going to be mortgage market reform, and my book talks a lot about the different changes that we made in terms of rules to safeguard the mortgage market to suppress the practices that had led to a lot of bad and irresponsible lending in that time. My tenure at CFPB involved a lot of changes for the mortgage market, and the book talks about a lot of those.