A Little Less Regulation From the CFPB, a Little More Action From the States

California’s Department of Business Oversight recently put nonbank mortgage lenders and servicers on notice about complying with the state’s Residential Mortgage Lending Act.

The CRMLA requires licensees to submit to the commissioner of Business Oversight, an annual report that contains the following data: loans originated, loans brokered, loans serviced, foreclosures and adjustable rate and other non-traditional mortgage loans. However, 13% of licensed lenders and servicers failed to file their annual report for 2017.

According to CDBO Commissioner Jan Lynn Owen, “That's disturbing, and we will take appropriate action under the law to deal with licensees that did not file their reports. The data is important for us, the public and policymakers.”

This is just one more example of a state regulator stepping up to fill the void left by the Consumer Financial Protection Bureau.

Earlier this year, New Jersey’s governor and attorney general announced that the state would create a “state-level CFPB” to “fill the void left by the Trump Administration’s pullback of the Consumer Financial Protection Bureau.” And shortly after Mick Mulvaney was appointed acting director of the CFPB in November 2017, AGs from 16 states and the District of Columbia came together to reiterate their statutory authority to enforce not only state, but also federal consumer protection laws.

Besides mortgage origination, servicing is another big area that the states are focusing on. The Conference of State Bank Supervisors and state regulators formed the Mortgage Servicing Rights Task Force in 2014 due to concerns about nonbanks increasing activities in mortgage servicing. And more recently, state regulators in Pennsylvania and Oregon joined 44 other states in requiring nonbanks to have a specific license for mortgage servicing.

In addition, examiners from multiple states are combining resources to identify noncompliance and provide effective supervision. In 2016 and 2017, 155 multi-state exams were conducted. This year, according to the CSBS, 87 multi-state exams are scheduled.

State regulators are also coordinating with the Multi-State Mortgage Committee, Multi-State MSB Examination Taskforce and the State Coordinating Committee. Last year, they conducted more than 32,000 state-level examinations, resulting in up to 10,000 enforcement actions.

States are becoming more active in exams and enforcements for a few reasons. The first is that no other federal agency is charged with protecting consumers (the Federal Reserveand the Office of the Comptroller of the Currency are focused on safety and soundness, and the FDIC on loan-level compliance).

Another reason is that federal requirements are being altered for institutions based on size and activity. For example, the Economic Growth, Regulatory Relief and Consumer Protection Act, which was signed into law in May, provides banks and credit unions with assets below $10 billion automatic qualified mortgage/safe harbor protection for loans that they hold on their balance sheet.

Lastly, CFPB leadership is in flux. Kathy Kraninger, a senior official at the Office of Management and Budget, was nominated as director of the CFPB, but, at the time of this writing, has not yet been confirmed and it is unclear if she will get the votes she needs. Based on her Senate confirmation hearing, it appears she may take the same “less-is-more” approach to consumer protection and regulatory enforcement as Mulvaney.

While a decrease in federal mortgage regulations may, at first, appear to be good news for lenders, it is important to remember Sir Isaac Newton’s third law of motion, which says that for every action, there is an equal and opposite reaction. So, if federal mortgage regulations and enforcements decrease, we can expect state mortgage regulations and enforcements to continue to increase—creating new (and more complex) compliance challenges, especially for nonbank lenders and servicers that must be licensed in all 51 jurisdictions.

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