Consumer Financial Protection Bureau (CFPB) Director Richard Cordray indicated in a speech Tuesday before the National Association of Attorneys General that his agency is preparing a new list of rules and guidelines for mortgage servicers drafted to better inform consumers on the lending process.
According to a HousingWire summary of Cordray’s speech, the director specified that the agency would require servicers to be more transparent on billing statements, notify borrowers of interest-rate changes months in advance and allow borrowers the chance to avoid those higher rates through either refinancing or renegotiation of the loans terms.
Cordray was quite pointed in his comments, saying the new rules could have made a world of difference had they been implemented earlier.
“Bad practices drove out the good; our responsible community banks and credit unions were literally robbed of market share; and the whole stinking mess eventually collapsed, dragging down many innocent people along with it,” Cordray said. “I firmly believe that had the consumer bureau been in place 10 years ago, the crisis would have been headed off before it metastasized.”
The new rules will be enforced by the state attorneys general, Cordray said, who was himself the attorney general for Ohio. A memorandum will be distributed to all the attorneys general’s offices that will establish a general framework for sharing information across state lines on servicer behavior.
The CFPB, though, is not the only new regulatory power in town. HousingWire notes that the Dodd-Frank Act also provided the states with a number of new oversight powers, including regulations on qualified mortgages and how escrow accounts are handled.
Ballard Spahr, a financial law firm, said the act emboldened state powers in the financial markets.
“It’s a tipping of the hat by Congress to the states to allow them to become bigger players in the regulation of the mortgage industry,” said Richard Andreano, the firm’s practice leader. “When you’re an AG and you see that, you feel emboldened to take that step and become a regulator.”
And banks are taking notice. At the Mortgage Bankers Association conference in February, a mortgage servicer executive cited “The AGs and the CFPB” as the two concerns facing the banking industry, according to HousingWire.
Interestingly, another practice leader at Ballard Spahr, Michael Waldron, said those concerns are reflected in the present behavior of many financial institutions in anticipation of the upcoming regulations.
“This settlement is not just about the five banks,” Waldron said. “The dollars are overwhelming and the issues are broad and far reaching. If you walk the floor of any servicer today, that servicer’s floor has a very different look and feel than it did 18 months ago.”