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August 10, 2012 9:51 AM CFPB Proposes New Mortgage Rules

By Ryan Cooper

We at the Monthly have been paying close attention to the new Consumer Financial Protection Bureau. Our former editor John Gravois wrote a big piece in our current issue on how the new agency is rolling out:

Polls show that, though few Americans are yet aware of the CFPB, an overwhelming majority support it once they learn about its mission of protecting consumers from big financial institutions.
Nevertheless, the now-bailed-out financial sector claims that if a strong regulator scrutinizes the safety of its products—as the federal government does with toys, cars, appliances, airlines, food, drugs, and most everything else that’s for sale in our capitalist economy—it will tank the industry. And so it has gone to war…
We might as well just say it: saving the CFPB is essential to fixing the fundamentals of our economy and even restoring the American Dream. Americans need a strong financial sector, but not, as we now know from painful experience, one that profits by methodically stripping its customers of their assets. Predatory lending has become endemic to the business model of American finance, and until that changes, it’s hard to see how the economy can once again provide broad prosperity. Not even the financial services industry itself will prosper in the long run unless it adopts a business model that helps build, rather than erode, the wealth of average Americans. The question is whether the bureau can survive the Republican onslaught, and, if so, whether this “twenty-first-century agency” will be powerful enough to change the way our consumer finance market behaves.

I’d say the piece is cautiously optimistic. If the CFPB hangs tough, they could do some very good things. The latest news comes via the WSJ, as the agency rolls out its new mortgage standards:

Under the Consumer Financial Protection Bureau’s proposal, loan servicers would be required to evaluate homeowners’ applications for loan-assistance within 30 days of receiving an application and would be barred from going ahead with a foreclosure until a final decision has been reached on a borrower’s application for help.

Yves Smith, notorious critic of Wall Street and their government allies, says actually this represents a “tough minded” move. One might wonder why. Seems fairly straightforward, right? Surely 30 days is long enough to process some simple paperwork.

The reason is, as John explained above, that the mortgage servicing industry (along with the rest of Wall Street) is largely corrupt. They are not in the business of evaluating creditworthiness and giving out loans to the most deserving. They are in the business of lying, cheating, and stealing. Therefore even the simplest and most clearly defensible rules will annihilate their business model, and they will fight hammer and tong. Smith has some more details:

The article indicates that the big servicers won’t like this because they will “make less money” and will fob the work on to special servicers. This would be written more accurately as “servicers will lose more money.” Servicing portfolios with high levels of delinquencies is wildly unprofitable; that’s why servicers cheat so much these days. Of course, lousy servicer economics will be used to argue for seriously watering down this proposal. I hope the CFPB is not moved…
I hope the CFPB has budget for a robust compliance and enforcement effort for this initiative. They’ll need it. The industry isn’t even remotely set up to comply, and violations will be commonplace. But this will save some borrowers, and even the ones who still get chewed up despite the new rules will presumably have a clearer path to restitution.

This is looking to be the CFPB’s first big test. If they can stay strong and fight off the attack from the grifter class, they could be in fine position for the future. We’ll stay on the beat.

Follow Ryan on Twitter and his website; follow the magazine @washmonthly.

Ryan Cooper is a National Correspondent at The Week, and a former web editor of the Washington Monthly. Find him on Twitter: @ryanlcooper

Comments

  • Neildsmith on August 10, 2012 10:52 AM:

    I don't get it. We all agree "...that the mortgage servicing industry (along with the rest of Wall Street) is largely corrupt. They are not in the business of evaluating creditworthiness and giving out loans to the most deserving. They are in the business of lying, cheating, and stealing."

    And yet we persist in the belief that it can be made safe enough for Americans of modest means to use their products. It simply defies logic for progressives to think that this is possible. We should be discouraging all manner of debt and instead we simply end up leading more naive little lambs to the slaughter. It's reprehensible.

  • c u n d gulag on August 10, 2012 11:00 AM:

    "Nevertheless, the now-bailed-out financial sector claims that if a strong regulator scrutinizes the safety of its products—as the federal government does with toys, cars, appliances, airlines, food, drugs, and most everything else that’s for sale in our capitalist economy—it will tank the industry. And so it has gone to war…"

    Oh, diddum's... :'-(

    If a little oversight and regulations will tank your industry, then maybe it's not worth having around in the first place.

    Kind of like a school that doesn't want people looking in, overseeing and regulating, to see if there's any sexual abuse going on.
    "Oh, no! Why, looking into that might tank our school!"

    FECK YOU - THEN IT NEEDS TO BE "TANKED!"

    If someone's afraid of a little oversight as the price of doing business, then they shouldn't be in business anyway.

    And somehow, I don't think the word "tank" means what you think it means.

    A few less pennies or dollars less per share won't tank any investor - unless he or she is looking to buy a big old Aemrican military tank, fully loaded.

    Maybe they won't be able to afford Mr & Mrs matching Jaguars - only Luxuses.

    OH! THE HUMANITIES!!!

    Oh, and "they've gone to war?"
    Hey, jackasses, as less and less people can afford to buy or stay in home, the people will win THAT war:
    'Cause it'll be A WAR OF ATTRITION - MORANS!

  • Hedda Peraz on August 10, 2012 11:10 AM:

    Small time crooks (loan sharks, pimps, contractors) bribe the cops and fleece the locals.

    Big time crooks (Banks, Mortgage companies, Military contractors) "bribe" the congress, and steal us blind.

  • dweb on August 10, 2012 11:25 AM:

    "I hope the CFPB has budget for a robust compliance and enforcement effort for this initiative. They’ll need it. The industry isn’t even remotely set up to comply, and violations will be commonplace."

    Be watching because THIS is where corrupted Congress critters do their dirty work...behind the scenes with fine print in budget bills, doing their damndest to gut enforcement by slashing regulatory budgets.

    They have done it for years in the SEC...an agency thinly staffed with underpaid folks who are going up against the biggest baddest lobbyists and lawyers money can buy.

    And they tried like hell the creation of CFPB (after they were unable to totally block it but did block Eliz. Warren as its head) to structure it so Congress could control the budget.

    Here's more detailed background on the GOP's efforts to "control" (e.g. gut and hamstring) the agency budget and their continuing efforts to get hold of the purse strings.....

    http://thehill.com/blogs/on-the-money/banking-financial-institutions/210871-consumer-bureaus-budget-faces-gop-scrutiny

  • T2 on August 10, 2012 11:36 AM:

    lets get back to politics...this money stuff is boring

  • TCinLA on August 10, 2012 11:54 AM:

    If we arrested the top 100 members of the Wall Street cabal, and then they went to a real jail, you can bet the rest of the cabal of conspirators and criminals will get the message. These people always think they have the rest of us conned, which is why every generation they have to be slapped down. They're about 25 years out of when the last slapping should have happened; instead they got a pat on the head for their crimes.

  • exlibra on August 10, 2012 1:01 PM:

    T2 @11:36AM,

    That was a mammoth-sized snark, yes?

  • schtick on August 10, 2012 1:17 PM:

    Government oversight on toys that "might" harm children has put how many companies out of business? If it were even one, it is a company that SHOULD be out of business.
    If they went after the crooks in the banks and the rest on wall street and half went out of business, it would be the best thing to happen to this country in a century. Maybe more.

  • Anonymous on August 10, 2012 1:30 PM:

    Oh the humanity:

    via Atrios:

    As the London-based bank prepares for a hearing with New York state's department of finance services regulator, which has accused it of moving $250bn of Iranian money around the financial system, the chancellor has sought assurances that the bank will be treated fairly.

    Osborne and his team spoke to Geithner and officials on Tuesday and received assurances that the US Treasury's Office of Foreign Assets Control (OFAC) would work with the myriad of other regulators looking at Standard Chartered's dealing with Iranian clients between 2001 and 2007.

    While the bank had known since 2010 it was being investigated for breaches of sanctions – it had shared information with regulators – it had not expected the New York regulator to go it alone in making public the alleged range of the breaches of the rules.

    And via your own link to Dealbook:

    Separately, Goldman Sachs announced early Thursday that the Securities and Exchange Commission had ended an investigation into a $1.3 billion subprime mortgage deal, taking no action. The move was an about-face for the commission, which notified the bank in February that it planned to pursue a civil action.

    “We are pleased that this matter is behind us,” a bank spokesman said Thursday.

    See my post above about how to render agencies like the SEC toothless...