FINANCE: Mortgage Lending
Balancing Consumer Protection and Broad Access to Credit The complexity of overlapping regulations and how they will affect the housing recovery. By Debra W. Still
O
ver the past several years, lenders serving homebuyers in America have experienced high levels of uncertainty in real estate finance. This uncertainty was driven in large part by the Dodd/Frank creation of a new regulator, the Consumer Financial Protection Bureau (CFPB), and by what has been called a pending “tidal wave” of future rule making. The industry has professed that high levels of uncertainty restrict credit and reestablishing certainty is critical for the marketplace. The Dodd/Frank rules were created to protect consumers from the excesses of the housing bubble and we never want to repeat the mistakes of the past, but we must also make certain that these new rules do not hurt the very consumers they were designed to protect. The CFPB has now been in operation for two years and has been transparent in its expectations of lenders. And as anticipated, 2013 marked the final publication of many key Dodd/Frank rules. To some 22 | N Magazine
degree, having the rules in place has eased uncertainty, but it does not resolve today’s overly tight credit conditions. In fact, thousands of pages of intricate rules will drive a marked shift in real estate finance — a shift from regulatory uncertainty to regulatory complexity. In January of this year, as required by the legislation, the CFPB released 3500 pages of Dodd/Frank rules. They include the Ability to Repay rule, Servicing Standards, the Loan Officer Compensation rule, the Homeowner Equity Protection rule, the Escrow rule, and the Appraisal rule. The combination of so many new rules being issued all at once introduces extraordinary levels of complexity that could make lenders even more cautious than they are today. Given this prospect, we must all be concerned about its effect on the availability of credit to consumers. We all agree that credit is already overly tight and while the housing markets are
improving, data shows that it is the higher end of the market that is actually fueling the market’s growth, with the lower end of the market continuing to shrink. Federal Reserve Chairman Bernanke noted, “The pendulum has swung too far the other way … overly tight lending standards may now be preventing credit worthy borrowers from buying homes.” CFPB’s Richard Cordray stressed, “Credit is achingly tight.” And President Obama in his 2013 State of the Union Address said, “With mortgage rates near a 50-year low, too many families with solid credit who want to buy a home are being rejected.” It is with that context in mind that lenders, consumer advocates, policymakers and legislators must work together to ensure that these complex new rules do not make credit even tighter for consumers, especially low-tomoderate income and first-time homebuyers. Between now and the end of the year,