CFPB's No. 2 Attempts to Reassure Anxious Bankers

WASHINGTON — Steve Antonakes, the No.2 at the Consumer Financial Protection Bureau, spent an hour with bankers on Wednesday attempting to ease concerns about impending mortgage rules and the examinations that will follow.

Antonakes repeatedly told executives at the American Bankers Association's government relations summit that the agency was listening to their concerns about mortgage rules issued in January, particularly issues with the so-called "qualified mortgage" definition.

Though he did not specifically promise to change the rules, he hinted that the agency may provide further guidance to help clarify their exam process.

"In drafting our mortgage rules, we have sought input from all stakeholders and attempted to carefully balance access to credit and consumer protection and also consider the compliance costs and impact on smaller lenders and servicers," said Antonakes, adding that the rules include proposed exemptions for "many" small lenders and servicers. "To this end, we will be working closely with you over the next year to aid and support the implementation of all of the new mortgage rules."

The CFPB unveiled new rules in January that require lenders to ensure borrowers have the ability to repay a loan. The regulations also create an ultra-safe class of loans, known as qualified mortgages, that have safe harbor protections from legal liability.

The rules carved out several exemptions for smaller institutions, but that has not stopped many community bankers from warning they will no longer offer any mortgages outside the QM criteria.

"We believe that it's going to potentially really restrict the ability of us to meet the mortgage needs of our community," said Mark Primeau, president and chief executive of the Bank of New Hampshire in Laconia, during the conference. "Some of us in our group in New Hampshire estimated as much as maybe 20% of the mortgages we currently have in our portfolio would not fit within the guidelines."

Antonakes acknowledged those "legitimate" concerns, but said the agency was limited by the requirements set forth by the Dodd-Frank Act.

"In my mind we have tried and really labored in many respects within the confines and the congressional mandates we have in the qualified mortgage rule to balance a need for consumer protection while also ensuring access to credit," Antonakes said. "We think we've done about as good of a job as we can within the qualified mortgage rules. We think the protections are there. We also believe through our thorough data analysis that most loans that have been originated historically by community banks can still be made through the parameters of QM."

Still, Antonakes said the CFPB will look at putting out continued guidance in the coming weeks to help address bankers' concerns that pulling back on mortgage lending could accidentally cause them to violate fair lending laws.

"We look to work with you, carefully, and also continue to take in concerns as we go through this implementation process," he said.

But listening was not good enough for some of the bankers in the room, who were hoping for more concrete relief. Antonakes offered some consideration when one banker asked whether the CFPB would allow a "grace period" for large banks during their first exam after implementing the mortgage rules by next January.

It's fundamental "that as we approach the first exams after the rules become effective, that we are taking a careful look at willful non-compliance versus an institution making the best effort and just struggling to get everything done within the allotted time," Antonakes said. "I think there's a degree of examiner judgment and discretion that can be very important here."

Antonakes did promise to create "common examination procedures" so "rules are enforced consistently." He also tried to clear the air about new exam tactics used by the CFPB that include participation from enforcement and fair lending lawyers.

Their inclusion initially surprised bankers because most regulators do not include enforcement attorneys during an exam unless there is a possible pending action.

But Antonakes said the strategy is meant to create better coordination and efficiency within the CFPB.

"This physical presence is generally limited and intended to enhance coordination, as well as to ensure that our attorneys have a first-hand understanding of the issues arising in examinations," he said. "The presence of attorneys is not intended to be taken as a signal that an enforcement action is planned or even likely."

Antonakes said they intend for their exams to be "rigorous and heavy on data analysis" while "also being fair and reasonable." However, he noted that the CFPB is different from other regulators in two ways.

"First given the mission of the bureau, our focus is on potential risk to consumers rather than risk to institutions," he said. "Second, eventually, our oversight work will become increasingly product-centric."

Bankers have long argued that the CFPB's focus on protecting consumers could cripple the safety and soundness of banks. Antonakes tried to ease such concern at the start of his remarks by noting his early career as a bank examiner in Massachusetts eventually led him to serve as the state's Commissioner of Banks.

"While the bureau does not have a safety and soundness mandate, we very much care about the financial health of banks and nonbanks," said Antonakes. "As a veteran of two banking crises, I can tell you unequivocally that, in my view, consumer protection is not in conflict with safety and soundness. Consumers benefit from a healthy, competitive and diversified financial services system through greater access to credit and competitive pricing."