Just like most banks already are
This Op-Ed appeared in HousingWire on July 29, 2016.
by Scott Olson
The Community Home Lenders Association believes that balanced regulatory policies for community mortgage lenders benefit not just those lenders, but also consumers. Independent non-bank lenders stepped up in recent years to fill the access to credit vacuum created by the exodus of many big banks from mortgage lending.
And, community lenders generally provide more personalized, localized servicing than large bank and non-bank mega-servicers.
Unfortunately, there is a growing recognition that the cost and compliance burden of a myriad of new mortgage rules is a major factor causing lender consolidation – with smaller lenders selling to larger lenders or exiting the mortgage business altogether. Consolidation of community lenders means less competition, fewer consumer choices, and higher mortgage rates and costs.
Neither community banks nor community non-bank mortgage lenders caused the housing crisis. Community lenders did not receive the consumer complaints the big banks did in dealing with distressed homeowners. And no single community lender poses a systemic risk or a significant consumer risk, because of the small size and diversification of smaller community lenders.
When Congress created the Consumer Financial Protection Bureau, it focused on larger firms, exempting 99% of all banks (those under $10 billion in assets) from CFPB exams and primary enforcement.
But no exemption was created for small non-bank mortgage lenders. Thus, CHLA strongly supports H.R. 5907, a bill recently introduced by Rep. Roger Williams, R-Texas, to apply these same smaller bank CFPB exam and primary enforcement exemptions to small community non-bank mortgage lenders.
This is justified because non-bank mortgage lenders are well regulated, both by every state they do business in and, based on product line, by Ginnie Mae, the Federal Housing Administration, and the Federal Housing Finance Agency.
Non-banks are actually more regulated than banks when it comes to the qualifications of its mortgage loan originators – an important protection for consumers. Every individual originating loans at a non-bank must pass the SAFE Act test, pre-licensing and continuing courses, and an independent background check – while bank loan originators are exempt from all these requirements.
Thus, it is appropriate to apply similar CFPB regulatory treatment that currently exists for small and mid-sized banks to smaller non-bank mortgage lenders – a step the Williams bill would take.
CHLA also believes that CFPB regulation and enforcement of smaller, non-bank community mortgage lenders should follow similar practices of bank regulators when it comes to consumer compliance. This means an emphasis on regulation by guidance first instead of enforcement first – working with the firm to improve compliance, which should be the ultimate goal.
Most importantly, smaller community lenders should always be given an opportunity to correct mortgage compliance problems prior to the CFPB initiating enforcement actions or fines – unless they are engaging in unfair, deceptive, or abusive acts or practices which pose a serious risk to consumers.
The goal should be compliance and consumer protection – and this approach accomplishes that. Notably, this is also the approach that bank and credit union regulators generally take – working with the institutions they regulate to fix problems.
To its credit, the CFPB provides bulletins and guidance on many common compliance issues, and has established a process under which lenders can submit specific compliance questions to CFPB.
But more could be done to improve guidance.
The CFPB should maintain an online up-to-date FAQ that provides specific, detailed guidance on mortgage questions that are most in need of clarification. Questions submitted to the CFPB in writing should be responded to in writing, and a safe harbor should be given to good faith compliance with such guidance.
Finally, CFPB guidance should be issued with the direct involvement and authority of the Enforcement Division, so lenders maximally know what to expect. All these steps can improve compliance, which is better for consumers.
These recommendations reflect a balanced regulatory approach that ensures community non-bank mortgage lender compliance with consumer regulations and a competitive market in which community lenders can maximally serve homebuyers.