The Consumer Financial Protection Bureau (CFPB)'s regulatory changes to the mortgage industry, namely the qualified mortgage (QM) rule and the new mortgage servicing rules adopted in January 2014, were met with a wave of criticism.
Those criticisms were unfounded, according to CFPB Director Richard Cordray in an address given Tuesday at the Credit Union National Association (CUNA). The relationship between CUNA and the CFPB has been a rocky one, with CUNA claiming that credit unions should not fall under the CFPB's oversight because they did not play a role in the 2008 financial crisis. Credit unions have complained that the CFPB's oversight has resulted in higher compliance costs which in turn has resulted in fewer financial products available to their consumers.
During his speech, Cordray defended the Bureau's oversight of credit unions in addition to dispelling several myths surrounding the mortgage-related regulatory changes enacted by the CFPB since the Bureau's inception four and a half years ago.
In particular, he stated that the QM rule, or the “ability to repay” rule, was derided by many who called it the “quitting mortgage” rule and claimed that volume would plummet while mortgage costs would double. Critics of the QM rule claimed that no one would make any non-QM loans because of the risk of litigation, Cordray said. Still others claimed that smaller lenders would be unable to offer mortgage loans under the new regulatory environment.
“We know change is hard and we understood the concerns, but at the Consumer Bureau, we never bought into the prophecies of doom and gloom,” Cordray said. “And as it turns out, we were right. The first set of mortgage rules have been in place for more than two years, and none of those pessimistic forecasts came to pass. In 2014, year one of our new rules, home purchase mortgages went up 4.6 percent, according to the authoritative HMDA (Home Mortgage Disclosure Act) data, and for jumbo loans, which are often non-QM loans, the increase was even higher. Even more relevant to this audience, the credit unions have thrived in this new and improved mortgage market. In fact, credit unions originated 39 percent more mortgage loans for home purchases in the first nine months of 2015 than the same period of 2014, according to the latest CUNA Mutual Group Report, which is prepared by CUNA’s own economists.”
Cordray noted that the share of mortgage lending by credit unions is growing and that those institutions that have focused on compliance burdens have “overlooked the positive benefits of the rules.” Since the CFPB has build out a vigorous supervision program over non-bank lenders nad mortgage servicers, credit unions are being put on a level playing field for the first time, Cordray said.
“Instead of attacking or resisting the CFPB, you should be supporting and speaking up for what it is doing for the best and most responsible financial institutions such as credit unions, that compete based on personal focus and strong customer service,” he said.
Also, a “cottage industry” of lawyers and consultants expressed fear that widespread litigation against lenders would result from the passage of the QM rule, according to Cordray.
“But now, more than two years later, so far as we can tell, not a single case has been brought against a mortgage lender for making a non-QM loan,” Cordray said.
Click here to view Cordray's entire speech.