Author Archives: David Reiss

GAO Report on Challenges for Financial Regulatory Reform

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The GAO has issued a report, Financial Regulatory Reform:  Regulators Have Faced Challenges Finalizing Key Reforms and Unaddressed Areas Pose Potential Risks.  The report notes that

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A variety of challenges have affected regulators’ progress in executing rulemaking requirements intended to implement the act’s reforms. Regulators to whom we spoke indicated that the primary challenges affecting the pace of implementing the act’s reforms include the number and complexity of the rulemakings required and the time spent coordinating with regulators and others. In addition, some regulators identified additional challenges, including extensive industry involvement through comment letters and litigation resulting from rulemakings, concurrently starting up a new regulatory body and assuming oversight responsibilities, and resource constraints.  (23)

These challenges are only compounded by the recent court decision that throws CFPB rulemaking into a pit of uncertaintly.  While the decision addresses the legality of NLRB recess appointments, it clearly implicates the appointment of Richard Cordray as the Director of the CFPB.  This has serious consequences for Bureau rulemaking which cannot be occur without a Bureau Director being in place.  (See Dodd-Frank section 1022(b)(1), codified at 12 U.S.C. section 5512(b)(1))

Foreclosure = Debt Collection

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The Sixth Circuit ruled in Glazer v. Chase Home Finance LLC, __ F.3d ___ (Case No. 10-3416, Jan. 14, 2013) that “that mortgage foreclosure is debt collection under” the Fair Debt Collection Practices Act. (2) As Glazer indicates, courts have been split on this issue, but the trend seems to be in accord with Glazer.

Of particular note to lawyers:  “Lawyers who meet the general definition of a “debt collector” must comply with the FDCPA when engaged in mortgage foreclosure. And a lawyer can satisfy that definition if his principal business purpose is mortgage foreclosure or if he “regularly” performs this function.” (16)

Center on Budget and Policy Priorities Report on Rental Assistance

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The Center has issued a thought-provoking report, Renters’ Tax Credit Would Promote Equity and Advance Balanced Housing Policy.  The summary states that

Over the past several decades, the nation’s housing policy has focused predominantly on increasing homeownership.  Most federal housing expenditures now benefit families with relatively little need for assistance.  About 75 percent of federal housing expenditures support homeownership, when both direct spending and tax subsidies are counted.  The bulk of homeownership expenditures go to the top fifth of households by income, who typically could afford to purchase a home without subsidies.  Overall, more than half of federal spending on housing benefits households with incomes above $100,000.

The report makes the obvious but politically delicate point that federal housing policy should assist low-income households as opposed to upper income households.  The report proposes a well thought out renter’s tax credit that could complement existing programs like the Low Income Housing Tax Credit.

Whether a renter’s tax credit (budgeted at $5 billion in the report) is politically feasible at this time is another question entirely.

Levitin Gives Overview of CFPB

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The extraordinarily prolific Adam Levitin has posted The Consumer Financial Protection Bureau:  An Introduction.  He concludes that the

CFPB faces a constant challenge in terms of measuring and then balancing the consumer protection benefits from regulation with the costs of regulation and the potential impact of those costs on the availability and pricing of consumer financial products and services. What remains to be seen, however, is whether the CFPB will back away from more controversial rulemaking and enforcement activity because of the political threat it faces or whether the agency will pursue the policies it believes to be substantively right irrespective of the political situation. In other words, will the agency’s own interests affect guide its behavior? And are those interests best served by compromise and living to fight another day or by taking a principled stand and hoping to rally political support on that basis? The CFPB is a powerful new agency, but it is also one very much aware of its vulnerability.  (35)

The paper was posted just as the Bureau unleashed a series of major rules for the mortgage industry.  Levitin is right that the path that the Bureau will take in the long term is still unclear.  But the early reaction indicates that the Bureau has taken a middle ground that has not unleashed vicious attacks from consumer advocates nor from industry groups.  Indeed, it has garnered measured praise from both camps.  Congressional Republicans do appear, however, to be preparing for a long term fight to dismantle the Bureau (see here for instance).

 

CFPB Issues Rules on High-Cost Mortgages

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The CFPB issued rules for high-cost mortgages (those with high interest rates and/or points and fees).  Importantly, the rules now apply to most mortgages, including purchase money mortgages; refis; home equity loans; and home equity lines of credit.

High-cost loans can no longer have prepayment penalties, balloon payments (except in special circumstances), big late fees and some other miscellaneous fees.

The high-cost mortgage rules have been criticized for not reaching many mortgages as they only kick in (in most cases) when the APR on a first mortgage is more than 6.5 percentage points higher than what people with good credit would pay or if the points and fees are more than five percent of the total loan amount.  The new rule will still cover only a small number of loans, so it is not clear if the new rule will have much impact on the market, as opposed to the new Qualified Mortgage rules.

 

 

CFPB Issues Rule on Loan Originator Compensation

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Distorted mortgage broker incentives were one of the big problems during the Subprime Boom.  Indeed, many lenders have since stopped outsourcing loan originator to mortgage brokers because a lot of the terrible loans they were stuck with had been originated by them.  Homeowners were also frequently burned by mortgage brokers who placed them in inappropriate products.

The CFPB has just issued new rules (summary here) relating to the compensation of mortgage brokers. One of the key elements of the rule is that broker compensation cannot be based on a term of the transaction such as the interest rate.  This is intended to keep brokers from steering borrowers into more expensive mortgages solely to increase their own compensation.  This is a major consumer protection initiative because a large number of homeowners with subprime loans were eligible for prime loans with lower interest rates.  Because brokers had been financially incentivized to place them in subprime loans, that is what they did.

The new rule seeks to prevent the mortgage industry from doing an end run around the rule by attempting to identify proxies for the terms of the transaction.  Time will tell whether the proxies work as intended.

Rental Housing Market Trends — Growing Demand, Unsurprisingly

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The Bipartisan Policy Center has an interesting “infographic.”  I found the demographic information to be of particular note.  The Center says that Baby Boomers, Echo Boomers, Former Homeowners and Recent Immigrants will be driving demand.