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Jennifer a. Smith
Assistant chief counsel for
economic regulation and banking
U. S. Small Business Administration
48 Scotsman Guide Residential Edition | scotsmanguide.com | February 2014
You’ve Got an Advocate
The office of advocacy communicates the voice of small businesses
entities, and seek alternatives that
might lessen the impact of proposed
regulation, if the regulation is expected
to have a significant economic impact
on a substantial number of small entities. In addition, the CfPb and two other
agencies must perform small-entity outreach if a regulation is expected to have
a significant economic impact on a substantial number of small entities.
The office also holds regular round-tables to hear from small businesses.
advocacy posts notices on its website
in a special section entitled ‘regulatory
alerts.’ This lets mortgage professionals and other businesses know what
rules are under consideration. The affected industries are asked to contact
advocacy if they are concerned about
a particular proposed regulation. Ultimately, the information that is received
from small entities is used by advocacy
to form a position that is presented to
a federal agency and might lessen the
impact of proposed regulation.
Mortgage professionals should pay
attention to advocacy. a high percentage of the mortgage industry is made up
of small businesses. The Sba defines a
mortgage business as small if it has
less than $7 million in average annual
receipts. Mortgage brokers and originators can help guide advocacy staff on
what position to take on the issues.
When the CfPb was created in 2010
with passage of the Dodd-frank Wall
Street reform and Consumer Protection
act, it became the third federal agency
required to hold special outreach to
small businesses when proposing
new regulation. Congress amended
the rfa in 1996, requiring that the Environmental Protection agency (EPa)
and Occupational Safety and Health
administration (OSHa) perform small-business outreach to ensure that the
views of small businesses were considered before publishing a proposed rule.
Small-business review panels, formally called Small business regulatory
Enforcement fairness act panels are
convened when a regulatory change
potentially could carry significant costs
on small businesses and other entities. The chief counsel for advocacy
and representatives from the rulemaking agency, the Office of Management
and budget’s Office of Information and
regulatory affairs, sit on the panel. The
panel seeks real-world advice from individuals within relevant industries and
produces a written report that is given to
the agency considering the rule change.
Invariably, the input from small businesses, such as mortgage brokers and
originators, provides valuable information on the potential real-world cost of
a new regulation. The comments also
help to develop viable alternatives to
The CfPb has convened three panels,
two of which involved issues relevant
to mortgage brokers. The first panel
looked at the issue of disclosure forms.
The Truth in Lending act (TILa) and the
real Estate Settlement Procedures act
(rESPa) require lenders and settlement
agents to disclose the terms and costs
of the loans. but each law has different
forms. Consumers and the financial services industry often find this dual-form
system confusing and time consuming.
Dodd-frank required the CfPb to develop an integrated form that met the
requirements of rESPa and TILa. The
change, however, would come at significant cost to small businesses, so the
CfPb convened a panel in february 2012.
Settlement service providers, mortgage
Mortgagebrokersoftenmayfeel unheard in Washington, D.C. That is not necessarily true.
One of the organizations that communicate the voice of small brokerages to
policymakers is the Office of advocacy,
which was created by Congress as an independent office within the U.S. Small
business administration (Sba).
advocacy has several duties. It is
the voice for small businesses, small
not-for-profits and small government
jurisdictions before Congress and federal regulatory agencies such as the
Consumer financial Protection board
(CfPb) and the Department of Housing
and Urban Development.
advocacy also watches whether fed-
eral agencies, including the CfPb that
monitors federal consumer-protection
laws in the mortgage industry, comply
with the regulatory flexibility act (rfa).
This act requires federal agencies to
analyze the economic impact of regu-
lations on small businesses and other
brokers, mortgage bankers, small banks
and credit unions participated.
at the outreach meeting, these
groups explained that the new TILa/
rESPa forms could be costly. They
would have to hire outside vendors to
update software to comply. The mortgage industry expressed concern about
paying substantial fees and training
costs, as well as increased costs for
compliance reviews, training and external audits of the new integrated forms.
advocacy sent the agency a letter,
echoing those concerns and asking the
CfPb to exempt small entities from the
requirements wherever possible. The
CfPb recently issued the final rule on
The CfPb also convened a panel when
it was developing proposals to implement new compensation rules under
Dodd-frank. The panel met with industry representatives in May 2012. The
panel considered proposed changes
to regulation Z’s loan-originator-compensation provisions, including
a proposal to ban upfront discount
points, origination points or fees under
certain circumstances. The provision
was to ban origination points and prevent the origination fees from varying
based on loan size. Industry representatives strongly opposed this flat-fee
requirement at the panel meeting and
subsequent conference calls.
advocacy submitted a comment letter, pointing out that the mortgage
industry wanted the CfPb to use its
exemption authority under Dodd-frank
and allow consumers to pay upfront discount points. after hearing the concerns,
the agency did not include the flat-fee
requirement in the proposed rule, writing it was concerned about “consumer
confusion and other negative outcomes.” While the CfPb is studying the
matter further, for now it continues to allow upfront points and fees.
• • •
The loan-originator compensation is-
sue and the disclosure forms are just
two examples of how advocacy has
been working to communicate the
voice of small mortgage brokers to pol-
icymakers. as issues arise, advocacy
will continue to seek input from the
industry and advocate on behalf of
mortgage brokers. •
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Jennifer a. Smith is assistant chief counsel
for economic regulation and banking at the
U.S. Small business administration’s Office
of advocacy. She joined the office in 1996,
and since then she has handled several
issues including resource allocation, fair
trade, housing, community development
and banking. Smith works closely with
the Consumer financial Protection bureau
on matters involving the Small business
regulatory Enforcement fairness act. reach
Smith at firstname.lastname@example.org.