Market Changes Have Been "Dazzling" Cordray Says

The “dazzling changes” in the mortgage market overrnthe last decade were the topic of address last week by Richard Cordray to thernNational Association of Realtors (NAR). rnCordray, Director of the Consumer Financial Protection Bureau, said the marketrnhas gone from an overheated, increasingly irresponsible one that “blew up thernlargest economy in the world, to retrenching dramatically into an overly tightrnand restrictive market where many good, creditworthy applicants could notrnqualify for reasonable loans.”</p

The lack of effective regulation before therncrash, he said, has now led to strong new regulations designed to protect andrnsupport both consumers and responsible businesses.  The result is arnmortgage market that is steadily recovering, with home values increasing inrnmany areas and millions of homes emerging from their previous underwaterrnstatus.  He commended NAR and its members for “hanging tough” through allrnof the bewildering changes that have led to this new regime.</p

The Ability to Repay Rule, he said, requiresrnlenders to make sure borrowers have the capacity to actually pay back theirrnloan.  Some, he said, called this rule,rnwhich is also known at the Qualified Mortgage or QM rule the “QuittingrnMortgages” rule, predicting that it would cause mortgage prices to double whilerncutting the volume in half and would lead to the demise of banks and creditrnunions as mortgage originators.  </p

Instead, with the rules now in place forrnalmost two years, he said, recent data confirms the very opposite of thernhyperbole and fears expressed in advance. rnIn 2014, the first year of the new rules, mortgage originations forrnowner-occupied home purchases increased between 4 and 5 percent, an upwardrntrend that appears to have accelerated in the first half of 2015.  While there was minor consolidation in somernparts of the mortgage market, there is no evidence of any mass exodus. In fact,rnafter adjusting for merger activity, he said, the number of lenders thatrnreported having originated mortgages showed an increase in 2014.  </p

He called most of the new regulations “commonrnsense” and said there had been special attention paid to community banks andrnsmall lenders which had the lowest default rates during the mortgage crisis.  The number of these smaller lenders originatingrnmortgages in 2014 was higher than in 2013 which he called great news.  “It means more opportunity for morernconsumers, and a renewed pathway to the American dream in a mortgage marketrnthat has been strengthened by the changes we have made.”</p

By taking on and rooting out unfairrncompetition that gobbled up market share by driving down sound underwritingrnstandards, the Consumer Bureau is supporting responsible lenders, Cordray said. rnThe market leaders of today are those that have remained focused on providingrnsustainable homeownership rather than just making a quick buck, no matter how.</p

At the same time this sensible regulation thatrnincludes substantial consumer protections should foster greater trust amongrnconsumers.  “If people believe they willrnbe treated fairly rather than becoming victims of predatory lending, they canrndevelop a renewed sense of consumer confidence.  And in the past fewrnyears, as consumers have improved their own financial health and seen theirrnhome values stabilize in many parts of the country, those sentiments arerngradually returning.”  </p

Cordray noted that the newrnTruth-In-Lending-RESPA Integrated Disclosure Rule (TRID) will go into effect onrnOctober 3, with its two associated disclosure forms replacing four olderrnoverlapping ones.  The Loan Estimate andrnthe Closing Disclosure show people what they are getting into in plain languagernin in an easy to understand format and with the information they most want – loanrnamount, monthly payments, taxes, insurance, other property costs, and the totalrncash required to close the loan – right up front.  Not only will this make understanding thernloan easier but will do the same for comparison shopping as the forms reducernthe information gap between lenders, who understand mortgage pricing inside andrnout, and consumers, to whom the process can often feel like a mystery.  </p

Cordray explained the timing under whichrnhomebuyers must obtain the forms from lenders but said there has beenrnmisinformation spread about what happens what loan changes will affect thernClosing Disclosure.  Should this formrnbecome inaccurate before the closing a new version must be given the borrowerrnthree days before closing, but there are only three very limited sets ofrnchanges that will trigger this; changing the loan product (for example fixed tornadjustable rate), increasing the APR beyond certain limits, or adding arnprepayment penalty.  Last minute changesrnbased on walk-through and other changes to seller credits and the like will neverrnrequire a new Closing Disclosure that delays the closing date Cordray said. </p

He concluded by pointing to a recent pilotrnstudy CFPB did where borrowers went through a mortgage closing using anrnelectronic platform.  Those borrowers, hernsaid, “Showed higher measures of understanding, efficiency, and feelingrnempowered than borrowers who used only paper forms.”  Based on thosernresults, he said the Bureau is strongly encouraging further industry action andrninnovation around “e-closings.

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