The director of the Consumer Financial Protection Bureau (CFPB) has admitted that the housing market has yet to fully recover from the 2008 recession, although he considered his agency as the key factor in all of the success the industry has experienced in the past few years.
In a speech delivered today at the Mortgage Bankers Association’s Annual Convention in Boston, CFPB Director Richard Cordray praised the mortgage industry for “doing the hard work of extending credit at a time when economic activity was greatly impaired by extreme financial conditions.” But he glumly acknowledged that the post-2008 housing market is still a work in progress.
“Even now, eight years later, we have not yet returned to normal conditions,” Cordray said. “The secondary market for mortgage financing remains moribund, and interest rates stand at historic lows. Although home foreclosures, mortgage delinquencies, and underwater mortgages have all declined steadily, they still affect millions of consumers who continue to feel the effects of the crisis. The pace of recovery has clearly been uneven around the country, particularly in communities of color. And I agree with Federal Housing Finance Agency Director Mel Watt [who addressed the convention yesterday] that the market is not yet supporting access to credit for the full spectrum of creditworthy borrowers; average credit scores for home purchase loans are still above the levels historically viewed as normal from past years.”
Nonetheless, Cordray accentuated the positive by pointing to a 20 percent year-over-year spike in new home sales, along with acceleration in home prices and a significant drop in delinquency rates. Perhaps not surprisingly, he credited the CFPB with this success.
“Notably, the first set of mortgage rules that we adopted took effect in January of 2014,” he continued. “That year, home purchase mortgages rose by 4 percent, according to the Home Mortgage Disclosure Act data. In 2015, they picked up steam, rising by almost 14 percent. Preliminary data for this year indicate that the growth trend continues to advance strongly. Even the millennials, many of whom have put off forming households until they were older, now seem to be starting to enter the market. And we are seeing many lenders willing to make sensible jumbo loans. Some of those are non-Qualified Mortgage loans, as more lenders come to recognize that their initial anxieties over the feared legal risks have not materialized.
“We firmly believe that through our work in this area, the Consumer Bureau has played an important part in these developments,” he continued. “We know that sometimes you are focused only on one side of the equation, namely the compliance costs you have incurred in implementing the rules we issued. That is a fact, but it is an inevitable one. No economic sector that precipitates a global financial meltdown could possibly expect to escape far-reaching reforms, as the Congress so dictated. But the safeguards we have put in place around underwriting, servicing, and loan originator compensation have improved industry performance, promoted responsible lending, and helped restore consumer trust that was badly shaken by the events of the past decade. These improvements benefit responsible lenders just as much as they benefit consumers.”
Cordray also heaped praise on his agency’s Consumer Complaint Database, calling it “a rich resource at your fingertips”—although he did not mention that the overwhelming majority of complaints filed against mortgage lenders were dismissed by the CFPB as being without merit. He also defined mortgage redlining as “a priority issue in our supervisory work,” although he offered no statistics on the level of redlining in today’s housing market.
Cordray also returned to a subject that has been the subject of much criticism from him and other CFPB officers: mortgage servicing.
“As we have publicly reported, we have seen some progress, most notably efforts by certain servicers to adequately staff up effective compliance management programs. But many troubling issues persist. While we applaud the investments made in compliance by certain servicers, others have not yet made satisfactory progress. Outdated and deficient servicing technology continues to put many consumers at risk. This problem is made worse by a lack of training to use their technology effectively. Needless errors impose harm to consumers facing delinquency or engaged in loss mitigation processes. These shortcomings can become chronic when servicers do not implement proper system testing and auditing processes. To spur needed improvements in servicer compliance, we will, in appropriate circumstances, be insisting on specific and credible plans from servicers describing how their information technology systems will be upgraded and improved to resolve these issues effectively.”
Cordray added that the CFPB “we will be working alongside industry to make sure the updated servicing rules we recently finalized, which generally will take effect in October 2017, are implemented effectively.”
In a rare public acknowledgment of the CFPB being put on the defensive, Cordray alluded to a federal appeals court rebuke of the agency in what Cordray dismissed as “the PHH matter,” adding that the CFPB would fight the ruling while continuing with a business-as-usual strategy.
“The case is not final at this point,” he insisted. “The Bureau has made clear that it respectfully disagrees with the panel’s decision and is considering its options for seeking further review. In the meantime, we will continue to consider how best to apply the Real Estate Settlement Procedures Act to specific factual situations just as we always do. In particular, we continue to adhere to our 2015 bulletin identifying the substantial risks posed by marketing services agreements as we have encountered them in our enforcement actions and through our supervisory oversight.”
