The outcome of the presidential election is still uncertain, but there’s at least an even chance that former Vice President Joe Biden will be named the winner at some point. If that happens, what should the mortgage industry expect as far as regulation and enforcement? In particular, what will happen to the Consumer Financial Protection Bureau (CFPB) under a Biden administration?
The CFPB, created under Dodd-Frank in the wake of the financial crisis, was an aggressive new regulator of the mortgage industry under its first director, Richard Cordray. But it has largely been defanged by the Trump administration, which sought to slash the bureau’s budget and appointed an interim director, Mick Mulvaney, who famously changed the bureau’s name and mission and asked Congress to reduce its authority and independence.
Kathy Kraninger, who took over as CFPB director in 2018, has been a more moderate director than Mulvaney but is still seen as running a kinder, gentler version of the regulator than was seen under Cordray.
Will the CFPB tide shift back under a Biden administration? After all, Sen. Elizabeth Warren, D-Mass., the original architect of the CFPB, is likely to have significant influence over a Biden White House, even if she stays in the Senate.
With the election results still hanging in the balance, we asked industry leaders what they would expect should Biden prevail.
One thing that seems very likely is that Biden would replace Kraninger soon after inauguration. A Supreme Court ruling in June means that a president can fire the director of the CFPB at will, as opposed to having to prove “inefficiency, neglect of duty, or malfeasance in office,” as outlined in Dodd–Frank.
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Rick Sharga, executive vice president of marketing for RealtyTrac, sees a likely Biden choice for CFPB director in firebrand Rep. Katie Porter, D-Calif.
“Katie Porter at CFPB [is possible],” Sharga said. “Warren was a frontrunner for Treasury but apparently now will remain in Senate.”
Porter was one of the Democrats on the House Financial Services Committee who grilled Kraninger earlier this year when she testified about how the CFPB would protect consumers during the pandemic, in a manner very reminiscent of Warren (who went after Kraninger in the same set of hearings in the Senate). Porter as director would be more in the mold of Cordray than anything the bureau has seen since.
Ori Lev, partner at Mayer Brown, noted the “precipitous drop in the number of new investigations from 70 and 63, respectively, in the last two years of Richard Cordray’s tenure as Director, to 15 and 20, respectively, in Mick Mulvaney’s tenure and Kathleen Kraninger’s first year in office.” The numbers for 2019 were not made available, but the trend under Kraninger was clear, and the trepidation of what might be coming under a new director is real among some in the mortgage industry.
For his part, Lev thinks that trepidation is overblown.
“The notion that Kraninger turned away from enforcement to a great extent was overblown. She brought cases and also continued cases that were brought by Cordray, so I don’t think there was a huge sea change to begin with,” Lev said in an interview with HousingWire.
There’s also a very practical angle that limits large numbers of enforcement actions, at least in the short term.
“Enforcement has a long pipeline — it takes a long time for that to wind through the system,” Lev said.
The fact that the number of new enforcement investigations has dwindled over the last few years means that there aren’t likely to be a lot of new investigations in that pipeline. But COVID-related servicing issues do warrant extra care, Lev cautioned.
“I think mortgage-related investigations are going to be laser-beam focused on COVID-related issues, and what servicers are doing to help consumers and not hurt consumers during this time,” Lev said. “And – how are they implementing the CARES Act?”
The bottom line, Lev says, is that companies should be careful to do the right thing no matter who runs the CFPB.
“Think about the impact of what you’re doing through the lens of the consumer. Whether it’s under Cordray or Kraninger, your company should be making sure your compliance programs are functioning and well-resourced.”