Small mortgage lenders seek exemption from CFPB exams
WASHINGTON — Independent nonbank mortgage lenders are urging policymakers to let them escape from the direct supervision of the Consumer Financial Protection Bureau.
In a Sept. 18 letter, two trade groups representing that industry lobbied Treasury Secretary Steven Mnuchin to support a bill that would give oversight of nonbank mortgage lenders exclusively to state regulators.
The groups want to "seek your support for targeted regulatory relief for smaller independent mortgage bankers," the letter from the Community Home Lenders Association and the Community Mortgage Lenders of America said.
The bill is similar to a recommendation made by the Treasury Department in its June report on regulatory relief.
"Supervision of nonbanks should be returned to state regulators who have proven experience in this field and an existing process for interstate regulatory cooperation," the report said.
Part of the argument is that small nonbank lenders are similar to community banks and credit unions, which are exempt from direct supervision by the CFPB under the Dodd-Frank Act if they have assets of less than $10 billion.
"But independent mortgage banks aren't exempt, regardless of how small they are," Scott Olson, executive director of the Community Home Lenders Association, said in an interview.
The groups argue that the dual regulatory process is "excessive," noting that they operate in a similar manner to community banks. The bill, by Rep. Roger Williams, R-Tex., would create an exemption for independent mortgage lenders with a net worth of less than $50 million and which originate less than 25,000 mortgages a year.
"Specifically, we would urge the administration to support legislation which provides for a targeted exemption for smaller [independent mortgage banks] from Consumer Financial Protection Bureau (CFPB) supervision, enforcement, and third party vendor management audits," the trade groups' letter said.
The groups are hopeful a companion bill can be introduced in the Senate soon.
"We feel that state regulators are doing a very good job of oversight," said Glen Corso, executive director of the Community Mortgage Lenders of America. "Otherwise, all the regulation would be left to the states for small lenders who originate primarily qualified mortgages."
A recent report by the Urban Institute found that 58% of purchase mortgages and 63% of refinance mortgages were originated by nonbank lenders in July.
Independent mortgage banks also generally have looser standards than other institutions. They have relaxed their credit scores more than banks, according to the Sept. 5 Urban Institute report.
"The nonbank median FICO score has declined 30 points (from 745 to 715) since early 2013, compared with just a 7-point drop (from 755 to 748) in the bank median FICO score," the report said.
But most of the relaxation of credit scores has occurred in refinancings, not in home purchase transactions.
"Although it has become easier to qualify for a refinance mortgage to reduce monthly payments, obtaining a new mortgage remains difficult," the Urban Institute report says.
Corso clarified that lenders are not seeking to be exempt from CFPB rules, just direct oversight.
"We are saying we shouldn’t have this dual regulatory process where we have to answer to two totally different bodies," he said.
The Williams bill also provides a safeguard that allows state regulators to ask for CFPB assistance in conducting examines. "So consumers are still protected," Olson said.
Preparing for a CFPB exam can cost anywhere from $100 to $500 a loan for very small firms, Olson said. For a large lender, it might be $5 to $10 per loan. "So it makes it pretty uncompetitive for really small IMBs," Olson said.
The Conference of State Bank Supervisors has "not taken a position" on the Williams bill, according to CSBS spokesman James Kurtzke. However, the conference does a lot of "information sharing and coordination with the CFPB on supervisory matters," he said.