A coalition of groups supporting tougher financial regulations has asked the Consumer Financial Protection Bureau to scrap its proposed revamping of mortgage rules over what it called inadequate safeguards for borrowers.
“Major improvements in these areas are needed -- including withdrawing and re-issuing a proposal if that is necessary in order to make the major changes required,” Americans for Financial Reform wrote in a letter to the agency on Oct. 9, the last day of a public comment period on the proposal.
The bureau plans to issue final regulations in January. Richard Cordray, the CFPB’s director, on Aug. 10 proposed the rules for mortgage servicing that he summed up as “no surprises and no runarounds.”
One set of rules is intended to provide homeowners with clearer, timelier information about changes to interest rates and options for avoiding foreclosure. A second set requires servicers to credit payments promptly, correct errors, stay accessible and limit foreclosures if homeowners are working on loan modifications.
The rules would cover major bank servicers, such as Charlotte, North Carolina-based Bank of America Corp. and San Francisco-based Wells Fargo & Co., as well as non-depository companies such as Ocwen Financial Corp., based in West Palm Beach, Florida.
Americans for Financial Reform, a Washington-based umbrella group that includes the AFL-CIO and the NAACP, faulted the CFPB proposal for focusing on procedures to the exclusion of more stringent consumer protections.
“The proposed foreclosure rules need to reflect the most basic lesson from the foreclosure crisis: the rules must mandate that before foreclosing, servicers must take specific, enforceable steps to evaluate homeowners for affordable and sustainable loan modifications,” Margot Saunders, an attorney for the Boston-based National Consumer Law Center, said in a statement.
Elizabeth Warren, the Obama administration adviser who set up the bureau, promoted the new agency by stressing its role in promoting transparency and disclosure in financial services.
The objections of consumer groups to the mortgage rules highlight the tension over whether the CFPB should go further and impose substantive obligations on financial service providers, said Ronald Rubin, a former CFPB enforcement attorney.
There is “a tug-of-war over whether the bureau’s mission should be to ensure that consumers are fully informed when making important financial decisions, or to force financial service providers to give consumers a better deal,” Rubin, now a partner at the Hunton & Williams LLP law firm in Washington, said in an e-mail. “Elizabeth Warren promoted the agency as the former, but most of the people who work there want it to be the latter.”
The consumer law center, a part of the coalition, said it objects to the permission given in the proposal for “dual-tracking,” the process of pursuing foreclosure while evaluating a homeowner for a loan modification.
The American Bankers Association called on the agency to move in the opposite direction, eliminating any requirement not specifically authorized by the Dodd-Frank Act of 2010. It also asked the bureau not to codify into regulation a $25 billion agreement concluded between the largest bank servicers and state attorneys general in February.
The Washington-based association said that the agency’s plan should be studied for its “cumulative impact” on the mortgage market.
“Due to the potential costs and sweeping nature of the CFPB’s proposals, many banks are re-evaluating their business models, assessing costs and risks that may result from the new regulations, and are considering how they may need to change their business plan, including whether they will continue to offer certain products and services,” the ABA wrote in an Aug. 9 letter.
The Dodd-Frank financial-regulation overhaul that created the agency allows it to provide a transition period of as much as a year before implementing the rules. The bureau has made no decision on that, according to its website.
The Small Business Association asked the CFPB to expand a proposed exemption from the rules for servicers that handle fewer than 1,000 loans per year. And it asked the agency to make the implementation period “as long as possible.”
“If the small servicers leave the market due to these regulations, the price of services will go up due to the reduced pool of providers,” the SBA’s chief counsel for advocacy, Winslow Sargent, wrote in an Oct. 5 letter. “This could result in more business for the larger providers that caused the underlying problem” of the financial crisis.