CFPB Chief Declines Federal Reserve Funding for Quarter

The acting director of the Consumer Financial Protection Bureau declined funding from the Federal Reserve for the second quarter of fiscal 2018, marking yet another departure from his predecessor.

“I have determined that no additional funds are necessary to carry out the authorities of the Bureau for FY 2018, Q2,” Mick Mulvaney wrote in a Wednesday letter to Federal Reserve chair Janet Yellen.

Under the Consumer Financial Protection Act of 2010, the director of the CFPB can submit quarterly funding requests to the Fed, generally in the amount that he or she feels is necessary for the bureau to carry out its duties.

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For the first quarter of fiscal 2018, former director Richard Cordray asked the Fed for $217.1 million, which the CFPB granted within a week. For the final quarter of fiscal 2017, that figure was $84.6 million.

But Mulvaney pointedly asked for $0 in his first request as acting director, arguing that the CFPB’s existing reserve fund of $177.1 million is more than enough to cover the projected second quarter expenses of $145 million. Because the Fed has generally always granted the bureau’s requests for funding, Mulvaney reasoned, the CFPB doesn’t need such a large reserve — and he thus plans to spend down the balance before he asks for more cash.

“Simply put, I have been assured that the funds currently in the Bureau Fund are sufficient for the Bureau to carry out its statutory mandates for the next fiscal quarter while striving to be efficient, effective, and accountable,” he wrote.

Unlike previous requests for funding, Mulvaney sent his directly to Yellen, the head of the Fed; under Cordray, those submissions went to other high-ranking officials.

Mulvaney also framed his decision to decline funding as a way to reduce the national debt, since the Fed’s earnings are occasionally turned over to the Treasury Department.

“While this approximately $145 million may not make much of a dent in the deficit, the men and women at the Bureau are proud to do their part to be responsible stewards of taxpayer dollars,” he wrote.

The news comes just a day after Mulvaney and the CFPB announced a long-term plan to seek more input on the bureau’s rulemaking and enforcement activities from the public and the business community.

A lawsuit over Mulvaney’s right to the director position — brought by Leandra English, Cordray’s desired successor — remains ongoing.

While the Department of Housing and Urban Development and the Federal Housing Administration remain the ultimate authorities on reverse mortgage enforcement actions, the CFPB has been active in policing the industry in recent years — including investigations into deceptive advertising practices that led to fines, and a report about using reverse mortgage proceeds to delay Social Security payments.

Written by Alex Spanko

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  • It is interesting that those who recommend offsetting the risk of sequence of returns on portfolios through a HECM have not made the same recommendation when it comes to Bitcoin. Perhaps that is because the strategy has its own inherent risks and limitations and is little more than another form of leveraging.

    Bitcoin is an excellent example of why all HECM strategies must be carefully considered based on the facts and circumstances of the prospect and then closely monitored. It is not an effective way of passive investing. When the market is in a rising or stagnate time period, it generally works but if the investment is risky, it is very, very difficult to justify its use.

    Blind recommendations of any HECM strategy should be avoided at all costs. Most demonstrations of HECM strategies avoid any mention of risk.

    Over the years, I have heard originators state that if they are working with a financial advisor, then it is up to the advisor to disclose risk. BUT is that really true? If risk is substantial can we in good conscience simply stand by and allow the transaction to close without a word of caution to the borrower?

    Coming into the industry back in 2004, there was a sense of pride that we were helping seniors avoid the pressures of a diminished cash inflow. I am not so sure that the same sense of purpose and pride of helping others exists today.

    • I’m sorry that you don’t feel that today others don’t have a sense of purpose and pride in helping others. I assure you that we are out here and I am confident that people are the same today as they were in 2004, 1994, 1984, ad nauseam. Even in 1946, there were mostly good people out there (George Bailey, banker) but there have always been the bad (Mr. Potter, banker).

      A possible explanation for your disappointment is that the internet and the explosion of dark daily news, finance (Bitcoin!) and other stories can be absolutely overwhelming.

      Try not reading all the negative headlines and clicking on “bait” for the next 3 months. I hope your perception of us in the RM industry (and the rest of humanity, for that matter) improves. Mine certainly has and it is still a wonderful life.

      • Mace,

        Thank you for your encouraging words but like other virtues expressed in industry, they come in waves. Until we have stronger ethical standards, I dismiss the notion that all is well and the need for training with an emphasis on conduct is not more needed than it was in 2004.

        I am not sure about banking generally or forward mortgage sectors of the financial services industry but I do have strong feelings that we as an industry need to improve substantially in our care of those we serve.

        After all even though we gain revenue from financial advisors’ referrals, we should have a stronger duty to our borrowers than those who recommend them.

        Since I am not by nature an optimist, I will not heed your advice about what to read. I am happier as a student of history with its problems and pain.

    • Using HECM cash as a way of delaying Social Security payments until the payments reach a maximum amount, and Bitcoins, are hardly comparable examples of CFPB involvement/interference in the HECM program.

      “The Social Security delay tactic” was an extremely high profile “pitch” used in probably the vast majority of radio “personal finance” infomercials, TV, direct mail and internet ads by financial planning/advisor companies to attract attention/interest.

      When the HECM researchers and financial-theorists of academe started “getting into the act” with suggestions (actually, recommendation) of using HECM proceeds to financially “get by on” until recipients reached their Social Security-maximum-age-for-maximum-benefit, “the government took notice.”

      The suggestions (of using the “delay”) were in good faith, and helpful with regard to exploring all options for the recipients in utilizing a HECM.

      The government’s publicly announced objection to using the “delay tactic” was “overreach” in something that’s clearly a matter of choice for the HECM recipients; recipients can choose to take a huge withdrawal and buy an annuity, or take the cash and go to Vegas if they want to (it’s -their- hard-earned asset).

      It’s not the originator’s duty to go through an endless, condescending, do-not-do list of what the recipients, obviously, shouldn’t do.

      Bitcoins have no resemblance and nothing to do with this, other than your attempt to throw-it-in as a bogus issue on which to predicate the rest of your superficial “argument.”

  • I applaud Mick Mulvaney on his decision to turn down a request for additional funds and ask for for $0 in his first request as acting director! Mulvaney’s reasoning is right on, the CFPB’s existing reserve fund of $177.1 million is more than enough to
    cover the projected second quarter expenses of $145 million!

    What the acting director is doing will not make a big dent in the deficit but every little amount, adds up to a big amount!!!

    John A. Smaldone
    http://www.hanover-financial.com

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