Mortgage lenders are scrambling to prepare for an onslaught of exams by the Consumer Financial Protection Bureau and they have identified several themes the bureau is likely to focus on by parsing through the recent settlements with credit card companies Capital One, Discover Financial Services and American Express.
Bank lawyers, consultants and lenders who gathered at a mortgage conference in Las Vegas this week say the data-driven CFPB is primarily concerned with the quality of data reported to regulators under the Home Mortgage Disclosure Act. Banks and thrifts already must report HMDA data to their primary regulators and the CFPB has the authority to apply it to nonbank mortgage lenders.
The bureau also is focused on ferreting out lenders with large numbers of consumer complaints and in determining if mortgage applicants are discriminated against—even unknowingly—by lax policies and procedures, experts said.
“You have to have your HMDA right and be focused on vulnerable customers,” Jo Ann Barefoot, a co-chairman at Treliant Risk Advisors, told mortgage lenders at an Ellie Mae conference, which drew about 1,200 bankers, compliance officers and nonbank mortgage lenders.
Angst over fair-lending enforcement was palpable at the conference as mortgage lenders—particularly nonbanks that generally do not have fair-lending programs—asked questions about what could get them in hot water with their new regulator. For example, they wondered if they would be dinged by the CFPB for such practices as giving a lower interest rate to a borrower with a high credit score who has made a substantial down payment.
“If you have pricing flexibility, you better test to see who got what price and whether protected classes are paying more,” said John Konyk, an executive director of government affairs at the law firm Weiner Brodsky Sidman Kider.
Barefoot, a former deputy comptroller of the currency who was one of 25 people
The CFPB has no jurisdiction over the Community Reinvestment Act, but Barefoot and others are convinced that the agency will seek to make nonbank mortgage lenders meet some at least of the requirements of CRA, which aims to reduce discriminatory credit practices in low-income neighborhoods.
“They are determined to make it unprofitable if you do things that are considered unfair,” said Barefoot. “They are doing this by hitting companies with eye-popping penalties.”
Mortgage lenders fear the CFPB is on “a fair-lending jihad,” Konyk said, and they are looking for insight from attorneys and consultants on how to stay out of trouble with their new regulator.
Of particular concern is the agency’s independent litigating authority, meaning it can bring its own fair-lending cases against banks and nonbanks in federal court. It can also hold adjudication proceedings before the bureau's own administrative judges, which can issue cease-and-desist orders and penalties, and provide equitable relief to borrowers.
Jim Brodsky, a founder member of Weiner Brodsky, said the CFPB has scheduled 48 exams of bank and nonbank mortgage lenders so far and is working their way through them. Exams can last up to three months and often the CFPB brings a bevy of enforcement attorneys and state examiners.
“It’s rigorous, it’s challenging, it’s intrusive,” Brodsky said.
