CFPB Director Nominee McKernan Probed At Senate Hearing

What’s to become of the Consumer Financial Protection Bureau (CFPB), and how will the Federal Housing Finance Agency (FHFA) help make housing affordable even as it seeks to remove Fannie Mae and Freddie Mac from conservatorship? 

In a series of often pointed exchanges, President Trump’s nominees to lead the CFPB, Jonathan McKernan, and the FHFA, William Pulte, were in the spotlight Thursday facing those questions at a nomination hearing of the Senate Committee on Banking, Housing, and Urban Affairs. 

The hearing came as all federal employees have been asked to justify the work they’re doing and the President and his Department of Government Efficiency (DOGE) are asking federal agencies to prepare for large-scale workforce reductions. 

CFPB’s ‘crisis of legitimacy’ 

McKernan, a former FDIC board member, noted that in his years of experience, he spent “a short detail to the CFPB all focused on the mortgage market, one of the key markets supervised by the CFPB.” McKernan added, “Through that work, I developed a detailed understanding of how the mortgage market works and the consumer protection laws that apply to it.”  

He not only indicated there’s a future for the CFPB, but said if he’s confirmed it’d be an active agency that would “enhance excellence and accountability” — and one that would meet all its statutory obligations.

At the same time, regarding those obligations, McKernan pointed to overreach on the part of CFPB that he said needs to be reigned in: “Too often, however, the CFPB has gotten in the way of its own mission,” he said. “It has acted in a politicized manner. It has pushed beyond the limits of its statutory authority.”

To help solve what he called the CFPB’s “crisis of legitimacy,” he emphasized, the agency “needs to be made accountable to our elected officials, and its past excesses need to come to an end.” 

If confirmed, McKernan said he’d ensure the CFPB “will take all steps necessary to implement and enforce the federal consumer financial laws and perform each of its other statutorily assigned functions — but the CFPB will do this by centering its regulation on real risk to consumers, and by focusing its enforcement on bad actors.” 

Democrats sought to reconcile McKernan’s assurances with a CFPB that presently appears mostly or wholly nonfunctional, with its offices locked, headquarters’ lease canceled, and whose approximately 1,700 employees have been instructed by Acting Director Russell Vought to stop their work. 

McKernan noted at the hearing he agreed with Vought’s move to reduce the CFPB’s funding draw to $0, claiming the agency already has enough funds to carry out its mission — but, again, affirmed the CFPB does indeed have a mission to carry out.  

“You're going to be placed in a very difficult position,” Sen. Jack Reed (D-RI) said to McKernan. “President Trump said in the Oval Office that the CFPB was ‘set up to destroy people,’ quote, and that his goal for the CFPB is to, quote, ‘be totally eliminated.’ He also said that the CFPB staff is a, quote, ‘vicious group of people.’”

“So, you do not appear to have much Presidential support or OMB [Office of Management and Budget] support,” Reed continued. “And I have this sinking feeling that you're departing Liverpool on the Titanic.”

Likewise, Sen. Elizabeth Warren (D-MA), who was a key driver of establishing the CFPB in 2010, pressed McKernan on what exactly the agency would look like under his leadership, if he’s confirmed, and what it will do. 

“‘Co-Presidents’ Donald Trump and Elon Musk seem hell-bent on trying to kill the Consumer Financial Protection Bureau,” Warren quipped. “Administration operatives evidently ordered everyone to leave the building and then locked the doors and told people not to do any work, anywhere.” 

“Now, Mr. McKernan, you've been nominated to run this agency where Elon Musk has told everyone to do nothing — it kind of feels like you've been lined up to be the number-one horse at the glue factory,” Warren said.  

Point-blanking the CFPB director nominee, she asked, “Mr. McKernan, would you agree that running an agency means carrying out the core functions of that agency laid out in law?”

To that, McKernan replied, “Yes. As the Director, you are tasked with some very specific statutory responsibilities; those are mandatory, not optional.” 

Warren said the CFPB has “at least 88” congressionally-mandated obligations, but she specifically called out several, including implementing and enforcing federal consumer financial laws “so that everyone has fair access to financial products like credit cards and mortgages.”

“Congress doesn't suggest that the CFPB do these things or ask the CFPB to do these things. Congress mandates it,” she said.

Republicans on the committee fired back, calling for reform of a CFPB they characterized as having lost its way and overstepped its bounds. 

“Until we can ultimately reform the CFPB, I believe you'll restore a balanced approach that protects consumers without stifling economic growth,” said Sen. Mike Rounds (R-SD). He added he believes the CFPB needs to be “rightsized” and made accountable to elected officials. 

“Over the past several years, do you feel that the CFPB has been operated outside of its statutory authority?” Rounds asked McKernan. 

“Yes, senator,” McKernan replied. “There have been, all too often, cases in which the CFPB has acted beyond its statutory authority, and you don't have to take my word for it, you can ask the courts.” 

Indeed, news came almost concurrently with this hearing that the CFPB’s recent lawsuit against Rocket Homes, Jason Mitchell, and the Jason Mitchell Group real estate brokerages was dismissed. That complaint alleged the companies engaged in an illegal kickback scheme and steered borrowers to close home loans with Rocket Mortgage. 

However, Rocket Homes confirmed with NMP the case was recently dismissed, stating: “It is good to see the truth come to light. This case was a misrepresentation of the facts, as we have said from the day the suit was filed. It was an empty claim brought forth by former CFPB director [Rohit] Chopra for the sole purpose of seeing his name in headlines during the final days in public office."

Sen. Thom Tillis (R-NC) asked McKernan if he believes the CFPB is a prudential regulator, meaning an agency that oversees financial institutions to ensure they are financially sound, to which McKernan bluntly replied, “No.” 

“Good answer,” Tillis said. McKernan was later asked, and again replied in the negative, whether he believes in “regulation by enforcement.” Republicans added their hopes that the CFPB would work to remove any unnecessary regulations it has imposed and, they said, thereby remove impediments to businesses and financial institutions. 

Housing affordability and GSE conservatorship

FHFA Director nominee William Pulte, the founder and CEO of the private equity group Pulte Capital Partners, LLC, and former director of PulteGroup, Inc., leaned in on his experience in the housing industry, and noted the FHFA’s conservatorship of Freddie Mac and Fannie Mae “should not be indefinite” — but, change in that regard needs to be approached with caution. 

“My connection to housing began at a young age. While many children spent their weekends at sporting events,” Pulte said, “I spent my weekends on homebuilding job sites with my father and my grandfather from the ground up. I learned every aspect of housing, whether it was cleaning job sites, assisting in construction, or helping sell homes.” 

“From an early age, I developed a deep passion for homeownership and putting a roof over people's heads,” he added. If confirmed, Pulte said his “number-one mission will be to strengthen and safeguard the housing finance system.” 

Regarding the GSEs’ conservatorship, Pulte noted, “Under President Trump's leadership in his first term, Americans were able to realize the American Dream of homeownership through Fannie Mae and Freddie Mac. To that end, while their conservatorship should not be indefinite, any exit from conservatorship must be carefully planned to ensure the safety and soundness of the housing market without upward pressure on mortgage rates.”

Researchers have said the re-privatization of the GSEs, as the Trump Administration seeks, would be a “Herculean task” and have expressed doubt it would do much to lower mortgage rates.   

“Since the global financial crisis, a robust private credit risk transfer, or CRT, market has been a key reform supported by Republicans on this committee,” Sen. Rounds said to Pulte. “For the eventual end of [the GSE] conservatorships, will you commit to supporting a strong CRT market to protect homeowners, taxpayers, and overall market stability?”

“With regard to CRT, I think it's very important,” Pulte said. “I think anytime that you can take risk away from the taxpayers and give it to the private market is a win.”

Recession or deregulation?

Meanwhile, Sen. John Kennedy (R-LA) highlighted that high prices of goods and materials are burdening Americans and are contributing to challenges helping stifle the U.S. housing market. The senator mentioned the possibility of a recession to bring prices down. 

“I know everybody's talking about DOGE and immigration and the war in Ukraine and the Super Bowl, but meanwhile, people are still suffering from high prices — very predictable,” he said. “When you have inflation and you get it down, that's disinflation. But the high prices still remain.” 

“Now we can make those prices go down, but we’d have to go into a recession, wouldn't we?” Kennedy posed to Dr. Stephen Miran, President Trump’s nominee for chairman of the Council of Economic Advisors, an agency within the Executive Office of the President, who was also at the hearing.   

Or, Kennedy contended, there’s an alternative: “My point is, [another] one of the ways to get prices down is to start deregulating.”

“That's a much better way,” Miran responded. “I agree. Removing barriers to the abilities of firms to produce will get them to produce more stuff; more stuff, lower prices.”