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CFPB Servicing Rules Are Excessive and Unauthorized
Posted By Diane Katz On January 23, 2013 @ 2:14 pm In Enterprise and Free Markets | No Comments
The Consumer Financial Protection Bureau (CFPB) has imposed yet more regulation on the mortgage market, as required by the Dodd–Frank statute. The latest set of requirements and restrictions focuses on mortgage servicers, those who are hired by lenders to collect payments and manage other administrative aspects of home loans.
Bureau officials tout the rules as “strong protections” for consumers. But consumers are not better off when government micromanagement of consumer finance reduces loan availability and increases mortgage costs.
The rules issued on January 17 amend two existing regulatory regimes: (1) the Real Estate Settlement Procedures Act (Regulation X ) and (2) the Truth in Lending Act (Regulation Z ). They are intended to prevent some of the questionable practices engaged in by mortgage servicers during the recent foreclosure frenzy, such as filing foreclosures without proper documentation, failure to review foreclosure documents before signing, and filing foreclosures despite offers to modify loans. Many of the provisions reflect the terms of the $25 billion National Mortgage Settlement between state attorneys general, the federal government, and five major lenders accused of servicing misconduct.
The CFPB, in recent weeks, also has issued hundreds of pages of other regulations, including the precise criteria that lenders must consider to verify and document applicants’ “ability to repay ” a loan as well as compensation constraints for loan originators. In many respects, the regulations reflect the central tenets of the bureau , i.e., consumers fail to protect their own interests and thus government must do so for them.
No matter the intent, some aspects of the mortgage-servicing regulations exceed the scope of the Dodd–Frank statute while others are simply unworkable. For example, the regulations require mortgage servicers to review or qualify a borrower for all possible “mitigation” options before foreclosure. The enumerated steps will impose a heavy burden on both the borrower and the lender whether or not the parties wish to pursue a particular option. Why force borrowers and lenders to evaluate, say, a short sale when he or she has specifically requested another mitigation option?
If anything, the added cost of reviewing all mitigation alternatives will likely result in fewer options being made available.
Bankers also are concerned about the new regulations on “forced-place” insurance, which involve the actions lenders may or may not take in the event a borrower fails to maintain hazard insurance on the house. Although Dodd–Frank does not empower the CFPB to do so, the bureau is requiring lenders to directly pay the homeowner’s premium for at least 45 days when a homeowner fails to do so.
The regulatory excess that these rules represent exacerbates the burden lenders face under literally thousands of other Dodd–Frank requirements. Of course, the larger servicers will adapt given enough time and investment. But the costs of complying with unnecessary and unauthorized rules will force smaller firms to close, and foist higher mortgage costs on consumers.
Article printed from The Foundry: Conservative Policy News Blog from The Heritage Foundation: http://blog.heritage.org
URL to article: http://blog.heritage.org/2013/01/23/cfpb-servicing-rules-are-excessive-and-unauthorized/
URLs in this post:
 Image: http://blog.heritage.org/wp-content/uploads/houseforsale.jpg
 Regulation X: http://files.consumerfinance.gov/f/201301_cfpb_final-rule_servicing-respa.pdf
 Regulation Z: http://files.consumerfinance.gov/f/201301_cfpb_final-rule_servicing-tila.pdf
 ability to repay: http://www.heritage.org/research/reports/2013/01/mortgage-lending-regulation-is-cfpb-qualified
 central tenets of the bureau: http://www.heritage.org/research/reports/2013/01/the-cfpb-in-action-consumer-bureau-harms-those-it-claims-to-protect
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