New regulations, and their consequences (intended and otherwise), are Topic A at the Mortgage Bankers Association's national servicing conference in Orlando this week. The problem, according to industry executives, is coordination—or lack thereof.
A prime example: On the same day that the Consumer Financial Protection Bureau's Steven Antonakes warned executives that the agency was taking a hardline stance on compliance with its new servicing rule, MBA officials complained that following the rule puts them in danger of blowing through Fannie Mae and Freddie Mac foreclosure timelines.
In an interview with Mortgage Servicing News, the trade group's president and CEO, David Stevens, talked about MBA’s efforts to get different government entities at the federal and state levels to talk to one another and understand how their efforts interact and conflict. The transcript follows.
Everyone in the mortgage industry keeps complaining about regulatory burdens. Would it be fair to say that overregulation suggests failure to get it right, regardless of the reasons why, which include the fact that it is a complex business?
Stevens: Regulation needs to happen. The whole industry wants to do this right. What’s causing the confusion unfortunately is that there are so many conflicting rules. So if you read, for example, the servicing standards that came out from the CFPB, they have [foreclosure] timelines that actually are not acceptable by Fannie Mae and Freddie Mac, certain forms of borrower contact and the timelines by which you must contact the borrower; also the investors, like Freddie and Fannie, for example, one requires lender-servicers to move quickly when they have to resolve when a borrower has not made their payments, through a process, if they’re going to make their payments, that is much quicker than the servicing standards rule allows them to do. And if you don’t comply with the GSEs' timelines, they charge what they call compensatory fees. You have to pay compensation to them.
If this becomes part of the natural course of business, those fees are going to get passed directly to every homebuyer through pricing. Our goal is to get the regulators to just be aware of where one rule conflicts with another.
How is that effort working so far?
Stevens: They haven’t agreed to get together as yet. However, we've got positive feedback in recent weeks from various regulators. They're not asking for policy coordination because they are independent regulators, so they're not going to coordinate per se, but they're interested in policy discussions with each other and for the industry to help point out where the overlaps occur. I'm hoping that through that process we can get something formative developed.
Is this going to be like peace in the Middle East, inconclusive?
Stevens: I firmly believe that the regulators want to get it right. There's no big effort here to stop lending in America. Regulators want to get it right, they want to get good, clear customer protections in America, but they all interpret how that has to happen differently. States want to do it one way, the CFPB does it in another way, the OCC does it a different way, the GSEs do it another way, and that’s what's causing the confusion. Out of best intentions they're creating unintended consequences and quite frankly, it's what we would call a contingent liability. And that’s going to cause lenders to be very tight on credit when there’s such uncertainty about the potential risk of violating one of these provisions and paying an extremely high cost.
My sense of this is: It's really important to try for all of them to be aware of each other’s policies that are all in the same area, and try to find ways to make them as similar as possible. National common servicing standards that everybody abides by, that are more strict than ever before in history and protect customers like we’ve never seen, are what we need. We don't need state policies, national policies, different regulator policies, all of which have different rules and approaches to the same issue. That is causing confusion
Q: And it’s redundant anyway
Stevens: Right. And that’s a failure of government. Government can be helpful, [it can] help protect customers, help expand credit, or can be harmful. In this case, in an effort to be helpful, the piling-on effect is actually causing harm, and that’s where they need to get better alignment.
Q: Do you have hope this will happen, maybe based on talks two weeks ago, as you mentioned?
Stevens: I think dialogue is going to happen.
Q: And can you tell who appears to be more interested?
Stevens: I really don't want to do that because my goal is not to make this something else. These are conversations that happen privately, professionally. The feedback should happen in a way that isn't used as a media effort. My goal truly is to get the regulators to start talking. And if they talk, recognize, at least just be aware; not to regulate their policies, not to coordinate policies, but so they all know the way these rules line up and they see the overlaps. Maybe enlightenment will come as a result and they'll realize they need to help the markets function better.
Q: Do you have any data that shows how many overlaps or redundancies are happening?
Stevens: No, I can't give you the total number of policies We break down each rule, to see where they intersect with other rules. The disparate impact rule that was released out of HUD directly conflicts with the qualified mortgage rule released by the CFPB. We use that as an example. Servicing rules on compensatory fees and the timelines associated with that conflict with GSE requirements on borrower contact timelines.
So we literally track this rule by rule, we do it very functionally. It’s not some grandiose effort. We take each provision, each rule that comes out, match it up against others; we lay them out on a spreadsheet so we identify what provisions conflict with other provisions.
Q: After everything is clear, it’s a matter of how to proceed going forward, what to do next. Do you have any sense of what changes may happen sooner rather than later?
Stevens: I don't know that yet. I’m hoping that as we pursue these conversations and we really lay out just the factual overlays, I'm hoping that the regulators who pay attention to that will discuss and look for opportunities to make changes. And that's it. It will happen over time. It won’t happen overnight. It's a slow process. It took a long time to make these rules. It’ll take a long time to improve them. That's the goal.
Q: So the goal is: If this becomes clear to everyone than they will keep it in mind when new rules come out?
Stevens: That's right, exactly. That’s key. It’s that creating a process is more important at this point than anything else. Creating a process where people just talk, because if you’re outside the Beltway, the collective stakeholder groups just blame Washington because it's so confusing inside the Beltway from everybody that's involved. It shouldn't be that way. We should be looking at [these needs]: We need to protect customers; we need the industry to function; we need to have credit expanded as much as possible within the constraints around the ability-to-repay measures.
We cannot allow unnecessary confusion and conflict to create an extra burden that limits access to homeownership. And that’s what it comes down to.
