Magazine article Mortgage Banking

The Shoot-Out over Cordray

Magazine article Mortgage Banking

The Shoot-Out over Cordray

Article excerpt

  When outlaws ruled the West
  And fear filled the land,
  A cry went up for a man with guts
  To take the West in hand.
  They needed a man who was brave and true
  With justice for all as his aim,
  Then out of the sun rode a man with a gun
  And Cordray was his name, yes, Cordray was his name.
  --Adapted from the Blazing Saddles theme
  (with apologies to Mel Brooks and Frankie Laine)

In addition to taking over a large part of the enforcement and regulatory authority from existing federal banking regulators, the Dodd-Frank Wall Street Reform and Consumer Protection Act (DFA) gave the Consumer Financial Protection Bureau (CFPB) dominion over non-depository providers of financial products and services. They included providers of residential mortgages, loan-modification and foreclosure relief services, private student loans, payday loans, and individuals and corporations that "the bureau has reasonable cause to determine ... based on complaints ... or information from other sources" are engaging in "conduct that poses risks to consumers with regard to the offering or provision of consumer financial products or services."

These providers' activities have gone largely unregulated, at least at the federal level, and because the power to prescribe new rules for non-depositories is vested in the director of the CFPB, and the bureau hasn't had one, it has not been able to move forward on the DFA mandate.

That all changed on Jan. 4, 2012, when President Obama announced he had appointed Richard Cordray (the existing head of the CFPB's Enforcement Division) as its director.

Since Cordray made headlines as Ohio's attorney general by suing Ally Financial alleging fraudulent foreclosures, the ratings agencies alleging inflated and misleading; residential mortgage-backed securities (RMBS) ratings, and Bank of America (BofA) alleging inadequate disclosure to shareholders prior to the vote on Bof A's acquisition of Merrill Lynch, the financial services industry is understandably not feeling too warm and fuzzy about the appointment. While there may come a day when the legality of the appointment and Cordray's authority to issue new rules are tested in the courts, he is, for the time being, large and in charge.

The big question now is: Given his history, how will Cordray exercise his new powers over non-depositories?

In his first speech, given the day after his appointment, Cordray came out swinging on behalf of consumers. He spoke about "good people with good intentions drowning in debts they could not afford ... [and] families bankrupted by complex mortgages with spiraling interest costs they did not understand," and the "novel and exotic mortgages battered housing markets . ., triggered the financial crisis ... and hurt millions.

In concluding his introductory remarks, Cordray said, "Consumers deserve to have someone who will stand on their side ... protect them against fraud and ... ensure they are treated fairly. The new consumer bureau was created to make sure these things are achieved for all Americans."

After citing more consumer misadventures with payday lenders and mortgage servicers, Cordray reaffirmed that one of the bureau's primary objectives is to ensure that buyers and sellers understand the terms of the transaction and that consumers have the transparency they need to do apple-to-apple comparison shopping. But because "transparency alone is not enough ... another key objective is making sure that financial institutions are playing by the rules" through examination and enforcement.

Cordray said that holding both banks and nonbanks accountable to consumer financial laws will also create a better environment for the honest businesses that serve consumers. As this issue was going to press, it was announced that the CFPB, in the first known formal investigation brought in its own name, is investigating allegations that PHH Corporation paid kickbacks to lenders and bankers in exchange for them referring mortgage insurance business. …

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