At Wolters Kluwer Financial Services, Edward Kramer is the executive vice president of regulatory programs, and Todd Cooper is the vice president of enterprise risk and compliance. Fresh off the CRA & Fair Lending Colloquium hosted by the company, the two sat down for this edition of In This Corner to discuss the changing regulatory landscape for lenders and what a mortgage will look like in the years to come.
HousingWire: How much frustration are you sensing with the uncertainty of the Consumer Financial Protection Bureau?
Edward Kramer: I'm not sure I would characterize it at this point as uncertain. If you're referring to the election and changes on the House side, I don't think we'll see an attempt to eliminate the bureau. I think the biggest challenge right now is for the bureau to establish itself. They have some folks that work at the different agencies that were transferred over on a temporary basis. One of the first things they have to do is set up an examination force. If they don't adequately fill the amount of required examiners, which no one thinks they will, they have to bring in new folks from the outside. They have to be trained. That's a lot to have to do between now and July.
There's no facility yet. They're in temporary offices. There is no back-office computer system. That has to be built.
Todd Cooper: From scratch.
Kramer: There's an enormous task ahead.
Cooper: Largely, I think people are certain that it's going to happen. The question will become, what will be the manifestation of this thing? And what that means to them. Does this mean we have to prepare for two fair lending exams? How many people are going to be looking at us? Is it going to increase our regulatory burden? There's a lot of uncertainty until the bureau comes out of the prenatal stage.
HW: Whenever this goes into effect, do you think it will be harder to get a mortgage?
Cooper: I don't think it will have an impact one way or another. It's about good solid business practices. Regulators aren't asking people to write more mortgages or fewer mortgages, but rather to just have better controls in place across the entire organization so they're funding the mortgages that should be funded and that they're not making poor decisions.
Kramer: We know from the consumer perspective there's going to be clearer disclosure forms, so we know that. We know that the obligations of the lenders are going to be much more significant about the borrower's ability to repay a loan.
Will that make it harder to get a loan? If we do a better job of underwriting, I would say it might, because now credit scores are going up. But maybe we should avoid enticing people we shouldn't have.
HW: There was an interesting point raised on one panel at this week's Colloquium. Will the market be dominated by the 30-year FRM? When do you think we will see some new product innovation?
Cooper: It's going to take awhile. People are going to be gun-shy for awhile, and it's already starting to come back a little bit. People are going to look for ways to put products on the market that are profitable. Further, you probably won't see certain riskier things ever come back.
The other thing you'll see is more controls and vetting around those other loans that are more inundated and riskier. In the early 2000's, appraisers did what everyone in the transaction wanted, which was to appraise houses at a certain value. The seller wanted it. The buyer wanted it. The real estate broker wanted it. The mortgage broker wanted it. Everyone one wanted it. And they were considered easy to work with. Those people are now considered fraudsters.
The question is how long are our memories? Do we get clouded by greed again?
Kramer: Obviously, the 30-year FRM is going to be predominant, but I think there is going to be room for other types of instruments. Some will be underwritten, well-structured adjustable-rate loans. But remember, a 30-year fixed can be refinanced. I'm seeing it in the co-op building where I live in New York. I see folks right now who have 5.5% fixed-rate loans that are refinancing. Can you imagine that? In 1975, I got a 8% 30-year fixed-rate loan. Who ever thought it would drop below 8%?
The 30-year, fixed-rate loan doesn't mean you are handcuffed for 30 years. Some people may be able to get that 4.25%. You'll never refinance that loan. I think it's good timing for folks to lock in a 30-year fixed-rate loan. The question is can you qualify for it?