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“There is no need for a rollback in mortgage
rules or a reduction in consumer protections.
What is needed is a more balanced
backed by taxpayers in any way and generally pose
no systemic risk. The failure of one or even a number
of IMBs would cause barely a ripple.
What about borrower risks? As noted, Congress
exempted most banks from CFPB scrutiny. The rationale arguably made some sense. Banks are already
supervised for consumer-protection compliance by
their primary banking regulator, and smaller banks
don’t have the same consumer impact that large
Congress created no such exemption for IMBs, however, no matter how small, despite the fact that IMBs
are regulated for compliance with federal and state
mortgage consumer-protection laws by every state
they do business in. This redundancy has recently
come under fire. A June 2017 Treasury Report on regulation said this makes little sense and advocated for
an end to CFPB exam authority for nonbanks.
Fortunately, we do not need Congress to act. The
CFPB has statutory authority to address this disparity. In establishing CFPB supervisory authority over
nonbanks (including IMBs), Dodd-Frank included a
statutory requirement that such supervision must
be “tiered” — based on factors that include a lender’s size, its volume, its product risk and the extent of
Consequently, smaller IMBs should be exempt from
ence to and coordination with state exams for mid-
sized IMBs. Regarding enforcement, the CFPB should
not impose fines or take enforcement action against
smaller IMBs unless it first receives a referral from one
of an IMB’s primary state regulators or from some
other federal regulator.
These policies should be formalized in a rulemak-ing. Even if a small IMB is unlikely to have a CFPB exam,
the costs of being prepared for CFPB exams and for
CFPB rules interpretations that might differ from those
required by a state regulator can add hundreds of
thousands, or even millions, of dollars of costs. This
can affect an IMB’s competitiveness, adding hundreds
of dollars of cost for each loan originated — while the
same compliance costs for large banks (or large IMBs)
are minor in comparison on a per-loan basis.
IMBs have proven that they can out-compete banks
when it comes to originating mortgage loans and in
providing personalized mortgage servicing. There is
no need for a rollback in mortgage rules or a reduction
in consumer protections. What is needed, however, is
a more balanced regulatory framework.
The CFPB should fully implement its statutory
Dodd-Frank requirement to provide tiered regulation
of IMBs based on their size, volume, product risk and
extent of state regulation. That includes creating a
CFPB-exam exemption for smaller IMBs and leaving
enforcement in the hands of an IMB’s primary state
regulator — unless the CFPB receives a referral from
that state regulator.
The CFPB also should use the requirement in
Dodd-Frank that all mortgage originators must be
“qualified” and require that all originators pass the
SAFE Act test and an independent background check.
Congress and federal regulators should base regulatory requirements and regulatory relief on size and
borrower impact, and not on whether a lender is a
bank or an IMB. n
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