Industry Lawyers, Consultants Breeding 'Culture of Fear,' Cordray Says

WASHINGTON — Despite dire predictions by banks and others that new mortgage rules by the Consumer Financial Protection Bureau would cut off access to credit, the industry is performing well two years after the regulations went into effect, according to the agency's top official.

Speaking at a credit union conference, CFPB Director Richard Cordray said that many feared the "Qualified Mortgage" rule would slash mortgage originations in half and set off a wave of lawsuits against lenders that dared to make non-QM loans. But that has not occurred.

"The first set of mortgage rules have been in place for more than two years, and none of those pessimistic forecasts came to pass," Cordray said.

The CFPB director blamed "a cottage industry of lawyers and consultants" who "sowed fear about the outsized legal liability that the rule would pose for mortgage lenders."

"But now, more than two years later, so far as we can tell, not a single case has been brought against a mortgage lender for making a non-QM loan."

While technically correct, it is still early for Cordray to claim victory. Most mortgage loans do not go into default in the first three years, which would be the trigger for a foreclosure action and a lawsuit.

Still, Cordray urged credit unions to "shrug off the naysaying consultants and lawyers who breed a culture of fear and hypothesized problems to hype their services."

He used most of his remarks to try to convince credit union executives that the agency and their industry were on the same side. The credit union industry and the CFPB have often found themselves at odds with each other — so much so that while speaking at the Credit Union National Association's government affairs conference, Cordray joked the black eye he was sporting was from a tussle with CUNA executives. (The shiner was actually from a basketball game.)

More seriously, Cordray said, "Let me say as bluntly as I can that I believe credit unions and the consumer bureau have much ground in common."

In meetings with credit union executives, Cordray said they regulary tell him that "credit unions made consumer protection 'job one' long before our agency came to be." He knows, he said, that "credit unions were not a culprit in the recent financial crisis."

Kate Berry contributed to this article.

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