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What will mortgage regulation and enforcement look like in 2021?

Experts at HW Annual outline what might happen after the election

As the election creeps ever closer, there are plenty of forecasts about how it could impact housing. HousingWire has reported on both the fate of the GSEs and the nation’s economic outlook as a red vs blue battle stirs in Washington. But what about the regulatory bodies that will decide the priorities for enforcement over the next four years?

At the HousingWire Annual panel, industry veterans Ed DeMarco, president of the Housing Policy Council, Kris Kully, partner at Mayer Brown, and Richard Andreano, Jr., partner at Ballard Spahr, discussed the future of regulation and enforcement as the industry gears up to run headlong into 2021. Julian Hebron, founder of The Basis Point, moderated the panel.

The most notable topic of discussion was the Consumer Financial Protection Bureau’s recent rescinding of a 2015 compliance bulletin related to marketing services agreements (MSAs), which the bureau said “does not provide the regulatory clarity needed on how to comply with RESPA and Regulation X.” Alongside the rescinding, the CFPB released an FAQ for guidance on the Real Estate Settlement Procedure Act (RESPA), which many companies have been accused of violating over the years – though several of those cases were thrown out.

“The Bureau’s rescission of the Bulletin does not mean that MSAs are per se or presumptively legal,” the bureau said. “Whether a particular MSA violates RESPA Section 8 will depend on specific facts and circumstances, including the details of how the MSA is structured and implemented.”

Andreano said that in the past, the Department of Housing and Urban Development targeted arrangements that may violate RESPA, whereas the CFPB turned their focus to arrangements that could cause harm to the consumers and used RESPA as a tool to stop or alter the practice. For lenders who want to properly protect themselves from violating RESPA, Andreano said they had to examine the source of the CFPB’s enforcements: Does this action prohibit consumers from the ability to shop and were they improperly steered?

A key concept that blurs the lines for RESPA is the one-stop shop, as lenders and servicers control every step of the process. Several experts were in agreement that data shows one-stop shops are something consumers actually enjoy. Kully said that under director Kathy Kraninger’s CFPB, one-stop shops aren’t top priority since she’s not receiving consumer complaints about them.

“It’s a lot of crossing your T’s and dotting your I’s but it’s also optics – is it very clear from a regulator looking at it that the consumer knew they had a choice and they weren’t browbeaten?” asked Andreano. “That’s they key is when you can say yes, you have your affiliate, and you promote their use and the benefit, but the consumer really has freedom of choice.”

As regulation and enforcement continue to fluctuate on a federal level, states have begun to take it upon themselves to expand consumer protection with a more local focus. Most recently, California converted its Department of Business Oversight to the California Department of Financial Protection and Innovation in a bid to “increase consumer protections without imposing undue burdens on honest and fair operators.”

According to DeMarco, whether it’s healthy for states to inject themselves to a further degree in consumer protection activities is up for some debate. He noted that for years the mortgage finance industry has made extensive investments to adapt operations and programs to comply with CFPB regulations – something a state level watchdog could also require.

“So now we’re introducing some states that say ‘Well that’s not good enough for us.’ The tough question becomes whether the state getting involved like that is really protecting the consumer or is essentially adding additional costs that is going to make it that much harder for a service provider to really be able to serve your consumers with little to no additional benefit in terms of consumer protection,” DeMarco said.

Future state conversions may take some time though, Kully noted, as states continue to deal with more than just mortgage banking and real estate settlement issues, but also privacy dilemmas and an ongoing pandemic.

However, all speakers were in agreement that whether the White House remains red or shifts to blue will play a major role in future enforcement.

Andreano noted that if the current administration remains, despite a lack of resources brought on by the pandemic, the states will continue recent activity. A Biden administration, however, would “ratchet up” federal enforcement and rule-writing – giving states a different approach with the federal government wielding a greater budget.

“It really is going to matter what happens with the White House, because it appoints the heads of the regulatory agencies and gives the general direction. The role of the Senate in all of this is going to be much more focused on oversight hearings, and using things like hearings as a means of pushing and prodding regulators in one direction or another,” DeMarco said.

The Supreme Court issued a decision on June 29 calling the structure of the CFPB unconstitutional and allowing the head of the agency to be fired at will, rather than a president having to prove “inefficiency, neglect of duty, or malfeasance in office.” That decision puts Kraninger’s job at the CFPB at risk, as well as Federal Housing Finance Agency Director Mark Calabria.

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