Sep. 13: CFPB Cordray’s testimony – who will regulate the regulator? Talk about the preparing for a CFPB exam

After 36 years of space travel and months of heated debate among scientists, NASA confirmed Thursday that Voyager 1 has indeed left our solar system and had entered interstellar space more than a year ago. It has good company, as I think that 30-yr fixed 3.25% home loans are right there with it.


An LO wrote, “Rob, now that the Department of Justice has announced that it isn’t going to prosecute pot growers, can we now use their income to qualify?  We have two clients who make a legal living as ‘farmers’ here in Colorado.” I don’t know – ask your underwriter. Sometimes I think about taking up a hobby like that, especially when we now find ourselves talking, all over again, about the debt ceiling and the poor condition our nation’s finances are in. Washington’s fiscal battles kicked into high-gear yesterday with a meeting Thursday of the top four congressional leaders. It has been a relatively restful six weeks. Per one source, this could set the tone for the autumn. But haven’t we heard all this before? And the financial markets will be once again subjected to months of posturing, arguing, and cajoling, probably which will end with the proverbial can being kicked down the proverbial road. At least with agriculture, or helping put a family in a new home, something of good is actually produced.


I will get off my soapbox and state that no one questions the clout of the National Association of Realtors – after all, somehow they put a capital letter in their trademarked name “Realtor”, unlike plumbers, mortgage bankers, soldiers… (By the way, the NAR is not to be confused with the AARP, although the average age is probably similar – as it is with mortgage bankers.) The following is a statement by National Association of Realtors President Gary Thomas: “Realtors applaud Senate Banking Committee Chairman Tim Johnson, D-S.D., and Ranking Member Mike Crapo, R-Idaho, for initiating a series of hearings beginning today about the future of the secondary mortgage market and the essential elements of sustainable housing finance reform. As the thoughtful policy discussions move ahead, Realtors continue to advocate for a system that ensures creditworthy buyers always have access to safe, reliable mortgages such as 30-and 15-year fixed-rate loans, even in tough economic times when private lenders cannot, or will not, enter the market. Our goal is to help Congress, and our industry, design a secondary mortgage market model that will serve America’s best interests today and into the future, and ensure a strong housing market and economic recovery. The National Association of Realtors, ‘The Voice for Real Estate,’ is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.”


Last week it was announced that the CFPB’s Richard Cordray was going to testify:


Well, he did – the Director of the Consumer Financial Protection Bureau (CFPB) finally got to present the Bureau’s third Semi-Annual Report to the House Financial Services Committee (FSC), five months after it was first issued. But the committee’s chair made it clear the Bureau is still on his watch list, basically asking, “Who will protect consumers from the Consumer Financial Protection Bureau?” Mortgage News Daily reported that, “Director Richard Cordray told the FSC that the report, published on April 23, illustrates the way his bureau is using the tools Congress has provided it to empower consumers and promote a fair, transparent, and competitive marketplace for consumer finance.  ‘We have taken steps to improve the workings of markets, particularly those in which consumers cannot choose their financial service providers.’


Remember that the CFPB “gained authority at the first of the year to regulate debt collectors and also expanded its supervision to include the larger credit reporting companies.  Cordray said that credit reports have a profound impact on people’s lives but that previously the companies controlling the credit data were not subject to federal supervision and consumers often struggled to get problems solved and errors corrected.  With these additions to its portfolio the Bureau can now evaluate whether federal consumer laws are being followed throughout the process, from credit origination through debt collection…Cordray said his agency had also addressed more than 130,000 consumer complaints and adopted new mortgage regulations mandated by the Dodd-Frank Act.  The Ability-to-Repay rule follows the simple principle that lenders should offer consumers mortgages they can afford to pay back.”


Remember that on July 16, after political posturing by both parties, and in a bipartisan 66-34 vote, the United States Senate confirmed Richard Cordray to become the Director of the Consumer Financial Protection Bureau. This happened on the eve of the Bureau’s second birthday, July 21, 2013. The Bureau, which was enacted pursuant to the Consumer Financial Protection Act, Title X of the Dodd-Frank Act, became an official agency on July 21, 2011. The Senate’s confirmation of Cordray will lead to more certainty about the Bureau’s direction and structure. Cordray’s confirmation hints of two things: that he will be the Director of the Bureau for the foreseeable future; and that the Bureau’s basic structure will not change anytime soon. K&L Gates wrote, “After Senate Republicans refused to allow a vote on Cordray’s confirmation, President Obama appointed him via recess appointment on January 4, 2012. However, the validity of this appointment was quickly called into question. Since that time, three U.S. Circuit Courts of Appeals have held that the President’s recess appointment of members to the National Labor Relations Board was unconstitutional. Although those cases did not directly address Cordray’s recess appointment to the CFPB, he was essentially appointed in the same manner and on the same day as the NLRB appointments being challenged.”


Yesterday Hensarling referred in passing to the dated nature of Cordray’s testimony before issuing a harsh general critique of the Bureau’s legal structure and authority.  He called it “arguably the single most powerful and least accountable Federal agency in the history of America.” Saying that it is an agency that demands rigorous oversight Hensarling warned it will undoubtedly demand numerous congressional hearings and inquiries, “So again not only do we welcome the Director today,” he said, “but we look forward to welcoming you to our hearing room for many further appearances before us.” The Chairman said the CFPB was designed to operate outside the usual system of checks and balances that applies to almost every other government agency.  It is effectively unaccountable to Congress because it is exempted from the budgetary and appropriations process.  It is unaccountable to the Executive Branch because the director can only be removed from office for cause.  It is also uniquely unaccountable to the courts under Dodd-Frank which mandates that in any disagreement with another agency the court must give deference to CFPB under the Chevron Doctrine.


“Hey Rob, the CFPB rolled out their latest Supervisory Highlights on 8/21 to let the industry know what they have been up to. In conversations with them the week before we were told that they would release this as a notification to the industry as to what they are penalizing people for. They made an interesting comment in the update: ‘…as a result of the CFPB’s examination activities, a number of supervised entities self-identified violations and made restitution to approximately 10,000 additional consumers.’ We should keep in mind that the recent enforcement actions and filed complaints are only part of the activity by the bureau and most of the penalties are not going public because they are considered to be addressed in the examination once the entity makes the consumer whole. 



They also went HUGE on the lack of compliance management systems in non-banks: “CMS deficiencies noted in nonbanks are generally related to the supervised entity’s lacking a CMS structure altogether. CFPB examinations have noted instances where nonbanks do not have a separate compliance function; rather, compliance is embedded in the business line. Policies and procedures and employee training developed within the business line can lead to various problems. For example, employees have not been trained in the legal requirements applicable to their jobs, resulting in situations where similar consumer contacts are inconsistently handled within the same entity.


“We at the Knowledge Coop have been screaming this ever since the examination manual came out last year. So many companies signed up for a clunky training system that has various modules on all the federal laws but have not addressed their internal policy training and auditing their internal compliance. So many companies don’t even have all of their policies written, let alone proof of training on each one. The CFPB just said in their release they expect, ‘…compliance management systems to be in place in the normal course of business, not just in preparation for an examination.’ The Knowledge Coop is a system that allows clients to upload their policies, procedures, custom training videos, and quizzes so they can document proof of their compliance in every area. For companies who need policy help we host a policy writing boot camp where compliance officers get direction from our experts while working side by side with their peers to get their company ready for the CFPB. We only allow 15 people in each event and our next one is October 9-11 in Maui! Sign up is available here:” So wrote Ken Perry, president and CEO of The Knowledge Coop (


Let us move on to recent vendor, lender, and investor news to give you a sense for what is going on out there.


Vantage Production, LLC, a vendor of customer relationship management (CRM) solutions that deliver marketing, sales and content, announced that Susquehanna Bank has selected its Vantage Integrated Production (VIP) service.


As a sign of the times, rumors are swirling around personnel levels. For example, and I do not have confirmation of this, yesterday I received, “Hi Rob, just wanted to give you a heads-up about Weslend Financial – they have downsized considerably running a skeleton crew out the Dallas office, laying off over 75 retail LOs company-wide.” A sign of the times…


This week it seems that guidelines are loosening, as one would expect with volumes dropping, but capital is flowing around the outside of QM entirely. For example, homebuyers in the city of Sacramento, Chicago, Miami, Phoenix…plenty of places, in moderate income limits can qualify for the LIFT program, a silent $15k 2nd mortgage which has no payments and can be forgiven entirely after a few years of occupancy. Check it out:


Fifth Third is now accepting Fannie’s Project Eligibility Review Service-approved condo projects provided that the loan in question is DU and that the note date is on or before the expiration date on the PERS approval.  Project conversions for PERS-approved projects will be permitted with no restrictions.


In the wake of Fannie’s announcement that it would be discontinuing all of its interest-only programs, Fifth Third will no longer be accepting new applications for Conforming IO loans.  All interest-only transactions currently in the pipeline are required to fund on or before December 31st.


Fifth Third has clarified that, for loans on new condo projects, the only delegated documentation that is required are the Condo Questionnaire, the current budget, and the H06.  Legal documents do not have to be submitted with each individual loan file; however, lenders need to maintain these and be able to produce them upon request.


Rates aren’t doing a heckuva lot exciting. Thursday traders reported that MBS selling was down slightly from the previous few days (less than $1 billion versus the recent $1.5 billion) while the Fed continued with its appetite that equated to $3.1 billion per day average over the past five days – of new paper and reinvesting paydowns. But the markets didn’t move much yesterday, by the end of the day, and the 10-yr closed at a yield of 2.91%.


This morning we have had some economic news which had the potential of moving things around – but didn’t. August Retail Sales (+0.4 expected, actual +.2%, so less than expected) and August’s Producer Price Index (+0.2% expected, actual was +.3%. core unchanged at +0.1 as expected). Later we’ll have the preliminary September read on Consumer Sentiment with consensus expectations at 82.0, little changed from the end of August. After the Retail Sales and PPI numbers, we’re nearly unchanged with the 10-yr at 2.90% and MBS prices “unched-a-bunch”.



Very Punny (part 4 of 3; sorry for any repeats)

When chemists die, they barium.

Jokes about German sausage are the wurst.

A soldier who survived mustard gas and pepper spray is now a seasoned veteran.

I know a guy who’s addicted to brake fluid. He says he can stop any time.

How does Moses make his tea? Hebrews it.

I stayed up all night to see where the sun went. Then it dawned on me.

This girl said she recognized me from the vegetarian club, but I’d never met herbivore.

I’m reading a book about anti-gravity. I can’t put it down.

I did a theatrical performance about puns. It was a play on words.

They told me I had type A blood, but it was a Type-O.

A dyslexic man walks into a bra.

PMS jokes aren’t funny, period.

Why were the Indians here first? They had reservations.

Class trip to the Coca-Cola factory. I hope there’s no pop quiz.

Energizer bunny arrested – charged with battery.

I didn’t like my beard at first. Then it grew on me.

How do you make holy water? Boil the hell out of it!



Rob Chrisman