it or (2) get in front of it and stop its unfolding! The CFPB has set forth its challenges. Its theories and our practiced responses can bring about greater consumer financial protection. We can meet this new challenge, now rising from the ways of the past. We can find beginnings that bring stability to market participants, both consumers and residential mortgage loan originators. Jonathan Foxx is president and managing director of Lenders Compliance Group and Brokers Compliance Group, mortgage risk management firms devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted at (516) 442-3456, by e-mail at jfoxx@lenderscompliancegroup.com, or visit www.LendersComplianceGroup.com or www:BrokersComplianceGroup.com.
Footnotes 1—Statement of Donald J. Frommeyer, CRMS, President of NAMB—The Association of Mortgage Professionals, “Compliance, Compliance and More Compliance,” NAMB Monday Morning Messenger, Feb. 10, 2014. 2—These rules may be viewed at http://www.consumerfinance.gov/regulations. 3—To discuss some facets of these due diligence considerations, I will draw on the 2013 CFPB Dodd-Frank Mortgage Rules Readiness Guide, Version 1.1, July 2013, especially “Part II – Readiness Questionnaire.” 4—Chairman of the Review of U.S. Human Space Flight Plans Committee. 5—Regulation Z 1026.35. 6—Regulation Z 1026.32. 7—Regulation Z 1026.43.
8—See the requirements of 1026.32 or 1026.35 of Regulation Z. 9—Refer to the CFPB’s Small Entity Compliance Guides or the rules themselves for additional information on exemptions. 10—American politician, actor, attorney, lobbyist, columnist, and radio host. 11—This outline of questions is not meant to be nor is it comprehensive of all questions and due diligence requirements for any given financial institution. Each institution must be evaluated as comprehensively as possible. 12—Regulation Z 1026.43. 13—Regulation Z 1026.35. 14—Regulation Z 1026.32 and Regulation X 1024.20. 15—Regulation Z 1026 and Regulation X 1024. 16—Regulation B 1002. 17—Regulation Z 1026.35. 18—Regulation Z 1026.36. 19—The CFPB has issued a complete exemption to the prohibition on loan originators receiving origination fees or charges from someone other than the consumer where the consumer pays upfront points and fees pursuant to its exemption authority while it scrutinizes several crucial issues relating to the design, operation, and possible effects in a mortgage market undergoing regulatory overhaul of such a restriction. 20—Credit insurance can be paid on a monthly basis and some unemployment insurance is excluded. 21—American investor, businessman, self-help author, motivational speaker, financial literacy activist, and financial commentator. 22—English philosopher, biologist, anthropologist and sociologist. 23—American aphorist known for his witty aphorisms. 24—French author of maxims and memoirs. 25—Lawyer, author, and magistrate of Ancient Rome. 26—As set forth in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Public Law 111–203, HR 4173).
53
gsf reform: thinking outside the box continued from page 49
continued on page 57
n California Mortgage Professional Magazine n FEBRUARY 2014
loans,” Congress saw fit to suggest limits on LTVs related to securities lending. While the Federal Reserve was made responsible for reviewing the suitability of such limits over time, LTVs were initially set at the higher rate of 55 percent of the current market price or 100 percent of the lowest market price during the preceding three years, subject to an overall lending cap at 75 percent of the current market price. This was a good example of a counter-cyclical capital reserving scheme, where within a defined stable market, a reserve level is set lower to maintain that stable market while another level is set higher to help a market in crisis recover. Ten days later, on June 16, 1934, the Pecora Committee released its final report. Though initially tasked with doing so, the report stops short of making legislative recommendations as Congress had already passed major legislative responses between 1932 and 1934. While acknowledging how these new laws would positively affect reform of important issues highlighted within the report, it is also emphasized that certain immediately “vital matters” remained to be
NationalMortgageProfessional.com
cence through the Glass-Steagall Act while letting the Federal Reserve choose how to address any residual obsolescence related to commercial banks failing to perform their liquidity function due to their direct and indirect exposure to the practice of speculating on asset value appreciation (a function better suited to investment banks and brokerages). One year later, the Securities Exchange Act of 1934 is passed. To prevent excessive speculation and the resulting “unreasonable fluctuations in the prices of securities,” the law sought to create more transparency around the trading of securities while also acknowledging the pro-cyclicality of lenders. Pro-cyclicality describes the tendency of lenders to offer more loans and higher leverage when collateral prices are rising, while also tending to restrict lending, offering lower leverage, when collateral prices are dropping. This tendency creates a self-reinforcing cycle which, if left unchecked, will lead to financial bubbles and depressions. To address how procyclicality can cause “alternately unreasonable expansion and unreasonable contraction of the volume of credit” and the prevention of “fair valuation of collateral for bank