Non-bank mortgage lenders have a whole new world of scrutiny ahead, with an uncertainty factor that could be the biggest concern going forward when it comes to consumer financial protection and the new watchdog agency that will enforce it.
Just how strong it is remains to be seen, but the last week included the appointment of a CFPB director, announcement of a non-bank oversight plan, and a meeting between President Obama and the agency to discuss its course of action—all within three days.
“I think unprecedented is the word of the day,” says Pat McManemin, a Dallas-based partner with international law firm Patton Boggs. “Everybody’s using it.”
One major point of change will be the discrepancy between state and federal regulation when it comes to non-bank lender oversight, McManemin says. “What you have now is not only unprecedented federal government capacity, but now you’re going to have a turf fight between federal regulation and the states.”
Each state still has its own set of rules, but now there will essentially be an overlay with the federal government stepping in where it has never before enforced regulation.
“There are 51 different ways things can be handled,” McManemin says. “There are now 52, with one on top of all the others. If the new director decides he wants to put additional requirements on reverse mortgages, he can do that any time he wants.”
The transfer of power from other agencies to the CFPB was a given, as is much of the supervision and examination responsibilities the agency has. While it only just announced specifics on reverse mortgage oversight this week in the release of its Mortgage Origination Examination Procedures, it has maintained some authority since its official launch on July 21, under initial leadership including Harvard Law Professor Elizabeth Warren.
The reverse mortgage industry has been involved in working to engage with CFPB officials as it gains power and enforcement authority.
“We had an extensive meeting with Elizabeth Warren and her CFPB staff as they began to plan the reverse mortgage study called for in the Dodd-Frank Bill,” says Peter Bell, president and CEO of the National Reverse Mortgage Lenders Association. “We had an excellent presentation by and discussion with Patricia McCoy, who represented the CFPB at our annual meeting, and also provided background information there to Megan Thibos, who is administering the study for the Bureau. And now we look forward to continuing our conversations with Richard Cordray.”
The oversight of non-depository financial companies started last week, effective upon Cordray’s appointment. But how soon might the bureau begin to take enforcement action? Some say it could be a matter of weeks and sources close to the agency indicate it will begin in a month’s time.
“[Non-banks] do need to be on alert that someone will be looking over their shoulder,” Platt says. “It will be tougher to cut corners.”
There’s one wild card that some are anticipating could stand to seriously change nature of enforcement. The extent to which the bureau will exercise its rights under its “Unfair, Deceptive and Abusive” authority under Dodd-Frank, is largely unknown.
“The Bureau can make it up as it goes along,” says Laurence Platt, financial services counsel with K&L Gates. “If they think the laws are insufficient, all they have to do is claim it to be unfair or deceptive. They don’t need another federal law, ever.”
Many expect mortgage servicers to come under examination first, as noted by Cordray in his first public comments, which took place at the Brookings Institution last week.
“We will begin dealing face-to-face with payday lenders, mortgage servicers, mortgage originators, private student lenders, and other firms that often compete with banks but have largely escaped any meaningful federal oversight,” Cordray said in prepared remarks.
Mortgage lenders can prepare to some extent, says K&L Gates’ Platt.
“Do self examinations before the government does its own.”
Written by Elizabeth Ecker