WASHINGTON (10/22/13)--In a speech delivered in New Orleans Monday, Consumer Financial Protection Bureau Director Richard Cordray, in effect, addressed critics of his agency's new mortgage rules saying they were needed, they are better than the alternative, and there are good reasons for the January 2014 effective date.
First, he said, two of the new rules will be "extremely important" in addressing some of the worst problems that undermined the mortgage market and served to push it towards collapse. They are the Ability-to-Repay rule, also known as the Qualified Mortgage--or QM--rule, and the CFPB's mortgage servicing rule.
The QM rule, he said, ensures borrowers get mortgages "they can actually afford to pay back," and the servicing rule cleans up "many sloppy and unsatisfactory practices," as well as provides a better process for troubled borrowers who could face the loss of their homes.
Cordray also noted that continuing with the mortgage market "status quo" was never an option under the Dodd-Frank Act, under which the CFPB mortgage rules have been written. "(T)he new law contained an entire chapter that largely would have taken effect in its own right in January 2013--nine months ago (Monday)."
"So you would have already been living under those provision for quite some time with no guidance to resolve ambiguities and subject to whatever interpretations the courts might eventually arrive at through litigation," he said in his prepared remarks to the American Bankers Association annual convention.
Under that regime, Cordray said, lenders would not have been permitted to charge any points or fees on any loan for which a loan originator--employee or not--was compensated; there would not have been a clear safe harbor against litigation for all prime QM loans as the CFPB rule provides, and there were no special provisions for small creditors, like the CFPB rule that deems as QMs all loans by those making 500 or fewer mortgages per year and keeping them in their own portfolios.
Regarding the fast-approaching January 2014 effective date, Cordray spoke in its defense as well.
"(T)here are many moving parts that are dependent on (the rules), and the mortgage market cannot attain certainty going forward if these part continue to move."