'Unfair' unregulated mortgage market was doomed: Cordray

by Ryan Smith25 Sep 2013

The head of the Consumer Financial Protection Bureau outlined his agency’s mission and spoke about new mortgage rules Tuesday in an address before the American Banker Regulatory Symposium in Arlington, Va.

CFPB Director Richard Cordray told symposium attendees that in the years leading up to the financial crisis, the marketplace became too complex for existing regulatory institutions to police effectively.

”The mortgage market, in particular, had become much more complex, and supervising only a part of it – leaving many participants without oversight and held to no standards at all – not only was unfair, but it was doomed to be ineffective,” Cordray said.“This supervision gap led to an uneven playing field between banks and nonbank firms that helped precipitate the financial crisis.

“…So, in an effort to prevent these kinds of problems in the single largest consumer finance market, Congress directed the Bureau to write sweeping new mortgage rules against a relatively fast eighteen-month deadline” he said.“…Two of these rules will be extremely important in addressing some of the most serious problems that undermined the mortgage market. First, the Ability-to-Repay rule (also known as the Qualified Mortgage or QM rule) is designed to end many irresponsible lending practices by making sure that consumers are getting mortgages they can actually afford to pay back. Second, our servicing rules contain provisions designed to clean up many sloppy and unsatisfactory practices and to ensure fairer and more effective processes for troubled borrowers who may face the loss of their homes.”

The rules, which take effect in January, underwent revisions throughout the year as the CFPB “(engaged) directly and intensively with financial institutions,” Cordray said.

“From our perspective, sensible rules of the road, appropriate market oversight, and evenhanded enforcement empower the American consumer,” Cordray said.

Cordray said the implementation of the new rules will help stem the deceptive mortgage lending practices that helped kick-start the financial meltdown.

“Consumers cannot make sound financial choices if they are given false or misleading information. Yet this happens surprisingly often in the financial marketplace,” he said.“In the lead-up to the financial crisis, for example, some lenders marketed mortgages with misleading teaser rates that misrepresented the full cost of the loan. One result was that too many homebuyers ended up with complicated mortgage products they did not understand and could not afford, which were doomed to failure – products they may well have avoided if they had known better.”

The CFPB has faced intense criticism since its inception. 

“(CFPB’s) accountability is … minimized by the vague language of its statutory mandate. It is empowered to punish ‘unfair, deceptive and abusive’ business practices,” wrote Diane Katz of the Heritage Foundation in a 2011 blog post.“While unfair and deceptive have been defined in other regulatory contexts, the term abusive is largely undefined, granting the CFPB officials inordinate discretion.”

In July of 2013, a lawsuit filed in federal court by attorney Kimberly Pisinski and Morgan Drexen Integrated Systems challenged the constitutionality of the agency.

“CFPB's structure insulates it from political accountability and internal checks and balances in violation of the United States Constitution,” the lawsuit stated.


Should CFPB have more supervision over credit agencies?