(TheNicheReport) - Even before the CFPB went "on-line" on July 21, 2011, their skeleton staff was hard at work – not only shaping the agency, but also crafting a more simplified approach to curing the age-old perception of "consumer confusion."
The National Association of Independent Housing Professionals (NAIHP) has been actively involved with the CFPB since day one and has met with the agency on 13 separate occasions, including a private meeting with Director Richard Cordray. Until recently, we found them eager to accept advice from industry experts in order to “get it right.”
Elisabeth Warren, whose brainchild became the CFPB, never officially carried the title of Director. However, as the President’s “special assistant,” she was the CFPB's de-facto leader.
Despite Warren’s reputation as anti-mortgage broker, validated by her 2007 Boston Globe op–ed on YSP, I found her to be receptive to an open dialog about brokers and YSP. In fact, after we discussed a 2010 independent study conducted by Harvard University, which specifically stated brokers weren't responsible for the mortgage meltdown or housing crisis, Warren appeared to be changing her thinking.
Warren’s determination to simplify disclosures, especially the new GFE/TIL, was welcome news to both industry and consumer groups. During the first of several industry roundtables held to discuss prototypes of the new disclosure, she stated more than once, “If we make up-front disclosures simple enough for borrowers to understand what they’re getting themselves into, then there’s no need for excessive regulations.” The CFPB under Warren treated all segments of the housing industry with respect and focused on solving problems, not pointing fingers.
However, today’s CFPB is a much different agency. Over the past few months, CFPB Deputy Director Raj Date, has been engaged in a full-scale attack on mortgage brokers. Speaking to The Greenlining Institute Conference in Los Angeles on April 20, 2012, the Mortgage Bankers Association in New York on May 7, 2012 and the American Bankers Association in Orlando on June 11, 2012, Mr. Date was quoted as saying, “Let me give you an example from the mortgage bubble: the yield-spread premium. Too often it was the case that mortgage brokers were paid more to give borrowers a worse deal. If a borrower could qualify for a loan at, say, 6 percent, a broker might juice that rate from 6 percent up to 8 percent. As a result, the most important, most visible person in the mortgage process for many borrowers – the mortgage broker – had a financial stake that was confusingly and perversely in direct opposition to the interest of the consumer himself. If people are paid to treat customers poorly, it shouldn’t be surprising when they do.
The Federal Reserve Board and then Congress took important steps in this area, and it’s our job at the Bureau to propose and finalize regulations that end these practices. We’re working hard to do just that.”
Based on his remarks, it’s clear that Mr. Date came to the CFPB with a preconceived notion about mortgage brokers. His characterization of mortgage brokers is without merit, as numerous, well-respected independent studies have vindicated mortgage brokers.
Perhaps Mr. Date is confused about who developed the exotic loan products that helped create the housing crisis. These were the same entities that made the underwriting decisions and placed consumers in loans with little regard for their ability to repay them. Mortgage Brokers don’t underwrite or approve loans.
As to his negative comments about yield spread premiums, according to the Federal Reserve Board’s written answer to the NAIHP lawsuit, wholesale and retail YSP are the same!
On at least three occasions, NAIHP hand-delivered two studies to the CFPB. One study was entitled, “The Pricing of Subprime Mortgages, by Mortgage Brokers and Mortgage Lenders.” This study, conducted by Georgetown University in 2005, examined over one million subprime loans. The study concluded mortgage brokers saved consumers an average of 1.13% on their annual percentage rate (APR). Brokers, who had been accused for years by consumer groups and some in Washington of taking advantage of minorities, were finally vindicated. The study revealed minorities saved up to 2% on their APR when using a broker. A second study by Harvard University, “Understanding the Boom and Bust in Non-Prime Lending,” blamed relaxed underwriting, excess liquidity and risk layering, along with regulatory and market failures, as some of the factors that created the mortgage crisis. Mortgage brokers and mortgage bankers were specifically exonerated.
What’s most interesting is Mr. Date previously worked for Capital One and Deutsche Bank. Both institutions had a large footprint in subprime lending. Some might recall, in April 2006, a top trader at Deutsche Bank AG wrote an email to his employer and questioned some of the mortgage-backed investments Deutsche Bank was selling to global investors. He said the securities that were “underpinned by home loans from subprime giant Ameriquest Mortgage were, quite simply, crap.” Where’s Mr. Date’s outrage about his former employer? These practices were major factors in our global crisis.
Speaking of Ameriquest, I wonder if Mr. Date is aware that a certain member of his regulation writing team is married to an individual who boasts on LinkedIn that she was a “Key member of the product development and implementation team” for the former subprime giant. Ameriquest, who was NOT a broker, agreed to a $325 million settlement with the Attorneys General over predatory lending practices.
Based upon Raj Date’s apparent bias against brokers, I’m concerned the proposed changes to loan originator compensation, as well as other expected rule revisions, have already been internally finalized and will further disadvantage mortgage brokers.
I won’t pretend some mortgage brokers weren’t involved in some unethical practices, but implementation of the 2008 SAFE Act took care of the bad actors. Since federally chartered banks are exempt from the SAFE Act, with the exception of the national registry, many who couldn’t qualify for a license on the broker side have found employment with the banks.
The Dodd-Frank Act (DFA) mandates certain rules and regulations must be in place by specific dates. Many in government and the financial services industry believe more time is needed to ensure the CFPB has sufficient time to “get it right” and avoid harmful unintended consequences. However, a recent lawsuit filed by Judicial Watch has revealed through discovery emails that suggest the CFPB is using the DFA mandates to fuel its own agenda.
In a February 6, 2012 email to his staff regarding his recess appointment, Director Cordray stated, “the fact that this appointment is for two years (and in some conceivable circumstances it could be shorter) does matter in one important respect… This time period should give to each one of us, and not only me, a fierce urgency to accomplish the work we are doing together.”
After Raj Date’s recent comments toward mortgage brokers, NAIHP called for his resignation. Even if his allegations were true, which they’re not, what was the reasoning behind them? Hasn’t there been enough of the blame game?
Raj Date owes mortgage brokers an apology and needs to start showing them the respect they deserve as LICENSED mortgage professionals.
Marc Savitt is the President of the National Association of Independent Housing Professionals. Previously, he served as the 2008-2009 President of the National Association of Mortgage Brokers. He also held the positions of NAMB’s President-elect, Vice President, Director, Chairman and Founder of the Consumer Protection Committee, and was awarded NAMB’s highest honor, Broker of the Year.