Since this is my first post to the CFPB Monitor, I would like to begin with a few words of introduction. My name is John Socknat and I am one of the practice leaders of Ballard Spahr’s new Mortgage Banking Group. The Group’s attorneys have decades of experience in the mortgage industry—advising clients, handling transactions and due diligence, defending enforcement actions and providing a full range of legal services. We regularly issue the Mortgage Banking Update, an e-newsletter focused on legal developments impacting the mortgage industry, and welcome new subscribers.
As announced in our January 12 post, the CFPB has published its Mortgage Origination Examination Procedures, a field guide for CFPB examiners looking at mortgage lenders and brokers. This specific focus on mortgage originators comes on the heels of the CFPB’s launch of its nonbank supervision program (which was the subject of our January 11 post.) According to CFPB Director Richard Cordray, the CFPB’s supervision of nonbanks mortgage originators will “illuminate the entire marketplace by making nonbanks play by the same rules as the banks.”
While Mr. Cordray’s statement is certainly headline worthy, it’s not clear how subjecting nonbank originators to federal supervision will actually level the playing field (something, by the way, that many nonbank originators likely would welcome.) Implicit in this statement is that state regulators have not been up to the task – an interesting position given Mr. Cordray’s previous job as Ohio’s Attorney General.
Bank and nonbank originators are necessarily subject to different laws; both are subject to the alphabet soup of federal laws and regulations (RESPA, TILA, ECOA, FCRA, GLBA, etc.), but nonbank originators are fully subject to the laws of each state where they operate. Moreover, state regulators have authority to, and do, examine for compliance with federal laws. In fact, state regulators have been moving towards a bank regulatory examination model over the past couple of years (in part dictated by the SAFE Act) – Mortgage Call Reports; Multi-State Examinations (where examinees are targeted based on size and perceived risk to consumers); focus on safety and soundness and financial health; etc.
The Mortgage Origination Examination Procedures represents an update to CFPB’s Supervision and Examination Manual, Version 1.0. (My partner, John Culhane, pointed out a number of issues with this version in his October 18 post.) While we have not yet undertaken a comprehensive side by side analysis of the CFPB’s Procedures and the Multi-State Mortgage Examination Manual, those familiar with the Multi-State Manual will recall that, like the CFPB’s Manual, it covers compliance with the major federal laws – ECOA, HMDA, TILA, FCRA, RESPA, GLBA, etc.
Larger nonbanks are expected to be the focus of CFPB examinations. However, larger nonbanks are already the focus of multistate examinations managed by the Multistate Mortgage Committee (a group of 10 state regulators appointed as the oversight body charged with implementing the multi-state exam process.) Given what we know are limited resources on both the state and federal level, it seems fair to question whether doubling up on larger nonbank lenders is really in the best interest of consumers or the best allocation of resources. Mr. Cordray apparently thinks it is, and the industry is certainly on notice.