United States: CFPB Director's Remarks At MBA Annual Convention: Progress, Updated HMDA Reporting, And Warning To Parties Engaged In Marketing Services Agreements

Last Updated: October 29 2015
Article by Ethan G. Ostroff and Mary C. Zinsner

Consumer Financial Protection Bureau Director Richard Cordray addressed the Mortgage Bankers Association at its Annual Convention on October 19.  In his remarks, Cordray:

  • Summarized the progress the CFPB has made in addressing the serious problems confronting consumers in the mortgage market and steps taken by the Bureau to restore the American Dream of homeownership;
  • Characterized the updated reporting requirements of the Home Mortgage Disclosure Act (HMDA) as a "sunlight" statute intended to provide the public and lawmakers with transparency about how lenders are meeting the needs of communities; and
  • Warned that parties participating in marketing service agreements (MSAs) need to be wary and in compliance with rules and regulations or they will face the CFPB in an enforcement action.

Cordray outlined the tasks the CFPB had accomplished from its initiation as a new agency to address the problems in the mortgage market.  Soon after its formation, the CFPB put new rules in place to protect prospective homebuyers and support responsible lenders.  These regulations included the "Ability to Repay Rule," which is sometimes referred to as the "Qualified Mortgage" rule.  Critics predicted the rules would cause origination costs to double and lamented that the regulations would lead to the demise of community banks and credit unions.  However, according to Cordray, two years later these concerns have not come to pass.  Instead, the CFPB believes mortgage lending has increased and that the industry saw only minor consolidation.  Cordray reiterated that the restoration of the mortgage and housing market is essential to restoring the American Dream.  A home is the most important financial decision most families will ever make.  But more importantly, Cordray noted, "a house that becomes a home is much more than four walls and a roof.  Instead it is a special place to raise a family and create lasting memories, a place to hold up as a source of pride and accomplishment."

According to Cordray, the CFPB has been flexible in working with the MBA to meet the needs of lenders and make adjustments to rules where necessary.  He noted that the Bureau approved recent amendments to mortgage origination rules to broaden the definitions of "small creditor" and "rural area" because it had been persuaded that the lines it had drawn were too rigid.  Over the course of the coming year, the CFPB will be launching a "look-back process" for certain rules,  providing another vehicle for lender feedback.

The CFPB has also implemented the " Know Before You Owe" mortgage disclosure rule.  According to Cordray, the CFPB recognized the system and operational changes necessary to adjust to the new requirements and allowed for a long implementation period.  Cordray acknowledged the struggles lenders were having with vendors and noted that "examiners will be squarely focused on whether you have been making good-faith efforts to come into compliance with the rule."  He further addressed arguments of critics of the rule, articulating again the CFPB's position that it is necessary for consumers to review closing costs and to compare them to estimates before they get to the closing table to ensure they are getting the deal they were promised.  The Home Loan Toolkit was also introduced by the CFPB to guide consumers through the process of buying and shopping for a mortgage.  Similarly, the CFPB's "Owning a Home" online tool provides consumers an interactive internet resource to help consumers make sound decisions about their home purchase.

The next "homework assignment" for the CFPB mandated by Congress is updating the reporting requirements of the Home Mortgage Disclosure Act.  Cordray noted that the CFPB recently finalized the HMDA rule.  He characterized the new HMDA as a "sunlight" statute intended to educate the public and lawmakers about how lenders are serving housing needs, and that provides an understanding of what is happening in local markets.  The new rule will require more robust data such as the requirement that lenders disclose home equity lines of credit, the age of borrowers, and rates and fees charged by lenders.  Additionally, the new rule adds other data elements to enable the Bureau to better understand trends, such as the dynamics of manufactured housing.  Cordray acknowledged that the HMDA modification will mean yet another implementation process for mortgage lenders.  With that in mind, the CFPB has set the date for compliance with most provisions for January 2018, with initial reports including the new data due in early 2019. 

In addition to improving available data, the CFPB is also focused on building a better collection system to streamline and modify the reporting requirements.  Cordray stated that the four ways the CFPB will achieve this goal are: (1) the final rule aligns definitions with the MISMO standards, the prevailing mortgage data standards in the industry; (2) the CFPB is working with the Federal Financial Institutions Examination Council and HUD to modernize the data submission process to collect information more efficiently; (3) the new rule exempts institutions originating fewer than 25 closed-end mortgage loans or 100 open-end lines of credit from HMDA data reporting requirements; and (4) the CFPB has issued plain-language implementation materials and will soon release a compliance guide for small entities.

Reiterating the CFPB's purpose as a supervisor and regulator, Cordray closed his remarks with a warning, making clear that the Bureau's charge includes oversight of the parties to MSAs.  He noted the risks stemming from MSAs and the opportunity for parties to pay or accept illegal compensation for referrals of settlement service business.  He noted the Bureau's "grave concern about the use of MSAs in ways that evade the requirements of RESPA," which is reflected in the bulletin released on October 8, which provided guidance to the mortgage industry with an overview of the federal prohibition on mortgage kickbacks and referral fees, examples from the Bureau's enforcement experience, and the risks faced by lenders entering into these agreements.  He warned that any party participating in MSAs, including lenders, brokers, title companies, and real estate professionals, should ensure compliance with applicable laws and regulations or be prepared to see increased enforcement actions from the CFPB.  "We want the industry to follow the rules – because that is good for consumers, honest businesses, and the economy as a whole."

In closing, Cordray thanked the MBA for its contributions toward making the mortgage market more fair and transparent for all Americans.  "Together we are building a more solid foundation so that you can thrive and so that families across the country can make the American Dream their reality."

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Ethan G. Ostroff
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