America is in “full damage control mode” while the Federal Reserve tries to control inflation, inflicting pain on the mortgage industry – and that’s when “bad policies have a habit of rearing their ugly heads”, according to Mortgage Bankers Association (MBA) President and CEO Bob Broeksmit.
The main threat now comes of the Consumer Financial Protection Bureau (CFPB), where the director can act as “judgejury and executionerall in one,” Broeksmit said in the keynote address for the 2022 MBA Annual Conference in Nashville on Monday.
“Americans need the CFPB to set clear and consistent standards, providing the opportunity for notice and comment when adopting rules,” he said. “Unfortunately, the Bureau does not always follow this common sense system, announcing new legal obligations without formal process or deliberation, applying new and untested legal theories, and making it very difficult for companies to understand their legal obligations.”
The CFPB has been in the spotlight for the past week – a panel of Trump-appointed judges on the United States Court of Appeals for the Fifth Circuit determined that its source of funding is unconstitutional. The Bureau receives funding through the Fed rather than through appropriations legislation passed by Congress.
The complainants, the Community Financial Services Association of America and the Texas Consumer Services Alliance, argued that the CFPB’s payday rule was arbitrarily and capriciously established and exceeded its statutory authority. They challenged the structure of the CFPB, its powers granted by Congress, and the CFPB Director’s protections from removal, claiming that they were all unconstitutional.
The CFPB itself has so far declined to say whether it will attempt to appeal the decision. However, a CFPB spokesperson says Politicofirst to report on the subject, that the agency Work in progress will remain unchanged for the foreseeable future.
With so much change in the market, it’s no surprise that the risk of mortgage fraud has increased this year. HousingWire recently spoke with Donna Gibson, COO and President of QC Ally, about fraud prevention and loan quality outlook for the remainder of 2022.
Presented by: CQ Ally
According to Broeksmit, the Bureau is expected to “undoubtedly” appeal the decision, including to the Supreme Court, if necessary.
“And the Supreme Court is likely to hear it because it’s a pretty big question,” he said. “All of this will likely take two years, and we expect that any further Bureau challenges that may arise in the Fifth Circuit will remain pending that outcome.”
The CEO of MBA said that, despite his criticism of the CFPB, “we like to set rules that give us safe havens for how we grant mortgages and we don’t want any of that to go away.”
Another mortgage industry group leader told HousingWire that the rule’s immediate impact on the industry is minimal. “But if upheld by the Supreme Court, the impact would be huge – the CFPB would have to go to Congress for funding, so its staff and funding could shrink significantly, as could the scope of what it does. ‘they do,’ he said.
Turbulent times in mortgages
Broeksmit also commented on the turbulent period for the mortgage industry.
“We’ve gone from the highest highs to some of the lowest lows in recent memory,” he said. “At this time last year, we were celebrating our second straight year of $4 trillion. Now the refis have fell 85%, and purchase loans are down 15%. We are looking at the lowest volume of new loan applications in 22 years.
He added: “We all know what drives the current disheartening trends. You can sum it up in one word: inflation. Twelve months ago, inflation was starting to show up. Then, seemingly out of nowhere, it hit records we haven’t seen in over 40 years.
The Fed, according to Broeksmit, will continue to take aggressive steps – that is, raising rates – to fight inflation, which will lead to short-term struggles, far preferable to the long-term damage that endless inflation would cause.
“There are many factors driving the economic mess we find ourselves in, such as COVID-related government spending, labor shortages, supply chain issues, a massive war on the other end of the world. But people can’t point fingers at the mortgage industry. Our current situation is exact opposite of the Great Recession.