Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra recently addressed The Mortgage Collaborative National Conference recounting the Congressional response to the mortgage industry crisis that began in 2008 that resulted in the creation of the CFPB. Mr. Chopra emphasized that challenges to the validity and authority of the CFPB could hurt the stability of the U.S. housing market and broader consumer protections.
Mr. Chopra’s remarks began with a brief history of the 2008 mortgage market crash, and how the actions of IndyMac Bank resulted in one of the largest ever bank failures managed by the FDIC. In response, Congress shook up the federal financial regulators by shutting down the Office of Thrift Supervision and stripping authorities from a number of banking regulators, transferring these authorities to the CFPB.
Based on this shift in protection, Mr. Chopra highlights that the CFPB established new standards for ensuring borrowers have the ability to repay through the ability to repay/qualified mortgage rule. Further, other regulators responsible for the standards for mortgage securitization largely “duplicated” the standards of the CFPB. Moreover, CFPB’s implemented mortgage rules mandated by Congress are now “built into the entire fabric” of the U.S. mortgage system, “including marketing, origination, securitization, and servicing.” Mr. Chopra stressed that these rules not only provide clarity, they have restored trust in the mortgage system.
Mr. Chopra warned that the recent court challenges to the constitutionality of the CFPB rules based on its receiving funding from the Federal Reserve System and not Congressional appropriations could have significant implications for the entire housing finance and financial regulatory system. Mr. Chopra maintains that the CFPB is just one part of the structure and not the only agency funded this way. He asserts that any doubt about the legitimacy of the CFPB could be “destabilizing.”
Citing to the recent Supreme Court amici brief filed by the Mortgage Bankers Association and other trade associations, Mr. Chopra emphasized that calling into question CFPB rules could have “potential catastrophic consequences on the mortgage and real-estate markets.” Mr. Chopra warns that reverting to a system without CFPB regulations would create uncertainty for the mortgage industry and the economy, concluding that “even putting aside the questions about existing rules, moving to a world where the future of housing finance oversight is uncertain and unknown…should raise serious shared trepidations among market participants, financial markets, and consumers alike.”
Notably, Mr. Chopra’s remarks were issued contemporaneously against the backdrop of a recent decision by the Federal District Court of the Eastern District of Texas vacating the March 2022 changes made by the CFPB to its UDAAP Exam Manual on the grounds that the funding mechanism of the CFPB is unconstitutional and that the changes exceeded the CFPB’s statutory authority.