CFPB’s Supervision Program Could “Challenge” Nonbank Lenders

The Consumer Financial Protection Bureau today launched the first federal nonbank supervision program, and Richard Cordray, the agency’s brand-new director, said the program could pose a challenge to nonbank lenders.

“Novel and exotic mortgages battered housing markets and triggered the financial crisis that wrecked the economy and hurt millions,” Richard Cordray, Director of the CFPB, said in prepared remarks for a hearing at The Brookings Institution on Thursday, adding that many of the subprime loans made during the housing bubble were through nonbank mortgage brokers.

“Since most of these businesses are not used to any federal oversight, our new supervision program may be a challenge for them,” he said. “But we must establish clear standards of conduct so that all financial providers play by the rules.”

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This new program will be an extension of the CFPB’s existing bank supervision program which began last July, with a purpose of ensuring that banks and nonbanks follow federal consumer financial laws.

“This is an important step forward for protecting consumers,” Cordray said in a statement. “Holding both banks and nonbanks accountable to consumer financial laws will help create a fairer, more transparent market for consumers. It will create a better environment for the honest businesses that serve them. And it will help the overall economic stability of our country.”

The bureau defines “nonbanks” as companies that offer or provide consumer financial products or services but don’t have a bank, thrift, or credit union charter, such as mortgage lenders and servicers, payday lenders, and debt collectors.

“There are thousands of nonbanks, with products that form a significant portion of the consumer financial marketplace and affect millions of Americans each year,” says the CFPB, adding that nonbank lenders originated nearly 2 million new mortgages in 2010.

The supervisory program is “designed to ensure that nonbanks comply with federal consumer financial laws” to “assess risk to consumers arising from those businesses” and will include “conducting individual examinations and may also include requiring reports from businesses to determine what business need greater focus on,” says the CFPB.

Nonbank examination will be the same as the agency’s bank examination, and examiners will use the CFPB Examination Manual as a field guide for both. Nonbank businesses will generally be alerted to an upcoming examination, says the CFPB, and those in violation of federal consumer financial laws will be faced with corrective actions.

The program will be coordinated with state regulators, when applicable, says the CFPB, and going forward, the bureau aims to expand its ongoing supervision of mortgage servicers to nonbank mortgage servicers; propose an initial rule to begin defining who meets the test for “larger participants” in certain nonbank markets; and publish rules to establish procedures to supervise a nonbank company where the CFPB has reasonable cause to believe it poses risks to consumers, among other plans.

Written by Alyssa Gerace

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  • Director Cordray has some good points.  The problem is that lenders which are not federally chartered will have to live by the same rules as those which are; HOWEVER, federally chartered banks will not necessarily have to live by all of the lending rules of the states in which they operate while those which are not federally chartered will.  As to mortgage lending, we should all be under the same operating rules, licensing requirements, etc. but Director Cordray does not seem to be addressing that.

    Director Cordray is also living too much in the past.  Today most mortgage lenders must provide federally insured mortgages to survive.  So most of us are to some degree under federal lending oversight whether through agencies directly such as FHA or indirectly because HUD has delegated some of their responsiblity to lenders when it comes to TPOs.

    So while oversight could be helpful to some degree, this oversight is very, very late and could end up being more headache than “consumer protection.”  It will be interesting to hear and read the experience of lenders who go through this examination process which are not federally chartered entities. 

  • “Since most of these businesses are not used to any federal oversight, our new supervision program may be a challenge for them,” he said. “But we must establish clear standards of conduct so that all financial providers play by the rules.”

    Let’s translate this. More rules so the new beaurocrat can show circular motion and appear to be doing something beneficial.

    Most non-bank lenders today are being regulated to the point that simple business decisions and taking care of customers has taken a back seat to fear of regulatory bully actions. This does not serve the public.

    When is this going to stop?

    Oh, I forgot. The next thing the new director will say is that Revrse Mortgages are “Novel and exotic mortgages” that are going to hurt untold millions of seniors.

    Because he, like most of his counterparts, has no clue what it is we do out here. Just ask, if you can reach him personally.

    I am not going to be politically correcton this one. I am sick and tired of the interference we deal with on a daily basis, when the real issue was and remains arbitrary and inneffective enforcement of existing law.

    It’s my opinion, just leave it there.

  • –charter AND investment BANKS provided warehouse lines and created the underwriting guidelines for the NOVEL and EXOTIC MORTGAGES. Most NON-Bankers that originated these loans did so with the blessing of the charter AND investment BANKS.
     
    — CHARTER AND INVESTMENT BANKS bundled these loans into MBS and CDO’s and sold them on Wall Street as safe investments, often to municipal and private pension funds.– CHARTER AND INVESTMENT BANKS created tranches for the CDO’s and MBS’s where the upper tranches were backed by credit default swaps and rated AAA. The AAA rating was given because the credit default swaps supposedly eliminated any exposure to the investor.– CHARTER AND INVESTMENT BANKS overleveraged their capital and could not honor the credit default swaps causing a massive collapse of the banking industry.– CHARTER AND INVESTMENT BANKS created false and/or signed documents attesting to foreclosures without checking if the foreclosures were valid ushering in the robo signing scandal. In the world of NON-BANKERS this is called FRAUD.  THE CHARTER AND INVESTMENT BANKS THROUGH THEIR LAX UNDERWRITING STANDARDS, derivatives, CREDIT DEFAULT SWAPS AND over LEVERAGED CAPITAL PROVIDED THE ROCKET FUEL THAT precipitated THE FINANCIAL MELTDOWN. YET THE BRUNT OF THE BANKING REGULATION IN RESPONSE TO this HAS BEEN aimed at CONTROLLING NON-BANKs!!  Where was your vaunted bank supervision when all of this was going on? Had the government agencies charged with bank regulation done their jobs the financial meltdown and current foreclosure crisis would be less severe. To here this administration tells it the NON-BANKS were the impetus for all the past and present ills of the housing industry. In their opinion the Dodd-Frank legislation with the CFPB as the enforcement arm will protect homeowners from us modern day robber barons.   As I have said before there are no white knights sent from Washington to save our industry only Don Quixote’s’.

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