More Fixes to CFPB Mortgage Rules Coming 'Any Day Now,' Cordray Says

RALEIGH, N.C. — Consumer Financial Protection Bureau Director Richard Cordray sought to allay lender fears Wednesday about the agency's new mortgage rules, pledging to be flexible with companies struggling to comply by the January deadline.

Speaking at a conference hosted by the North Carolina Bankers Association, Cordray said the agency would release a second set of amendments to its ability-to-pay rule "any day now," bolstering the first set released in May.

"We have made these adjustments with one aim in mind: to ensure the effectiveness of our rules by making it easier for industry to comply," Cordray told a group of anxious and skeptical bankers and mortgage lenders. "By addressing and clarifying industry questions, we are reducing the need for individual institutions to spend time reaching their own uncertain judgments."

Cordray also tried to ease concerns of bankers trying to comply with the Jan. 10 deadline for the new rules.

Oversight "will be sensitive to the progress made by those lenders and servicers who have been squarely focused on making good-faith efforts to come into substantial compliance on time," he said.

"I have confidence that people will be substantially ready," Cordray later added. "If you're not perfect, keep working to be there."

Bankers at the conference had a mixed reaction to his comments. Some applauded Cordray for injecting rationality into the discussion of January compliance. Many, however, expressed ongoing frustration with continuous tweaks that are preventing them from taking bolder steps to comply.

"We don't want to devote too much to memory — or resources to training — while things keep changing," Tom Wallace, a division president at Isabella Bank in Mount Pleasant, Mich., said after the speech. The $1.4 billion-asset bank already has its hands full migrating to adjustable-rate mortgages from balloon loans because of the Dodd-Frank Act.

Cordray also addressed concerns about a legal safe harbor designed to protect lenders that make "qualified mortgage" loans from consumer lawsuits. The CFPB provided two legal protection options for lenders within its QM mortgage rule, but industry observers have expressed concerns that complicated metrics built into the criteria for safe harbor could easily trip up a bank if it faced a court challenge.

"Our rule does apply the legal safe harbor to all prime QM loans, which affords effective protection against legal challenges," Cordray said.

"We drew bright lines to define the contours of a qualified mortgage," he added. "If those lines were not drawn as sharply as they are, then much would have remained to be fought out in the courts for years and years. … So you should keep this perspective in mind if you hear people dreaming up hypothetical factual disputes in an effort to sow anxiety about potential litigation under the rule."

Cordray's remarks appeared to come in response to an American Banker article last week in which attorneys argued that a QM designation could be successfully challenged in court if it even slightly deviated from the standards outlined by CFPB in its rule.

That issue has drawn attention from numerous bankers, including Dennis Hamrick, a loan officer at Morganton Savings Bank in Morganton, N.C. "We can meet the requirement of the QM," Hamrick said, though he noted that the $84 million-asset thrift often makes loans to people with low FICO scores or atypical loan-to-values.

Finally, Cordray tried to assure attendees that the CFPB is working with other regulatory agencies to ensure consistent enforcement of its rules. "Nothing would discredit the regulatory regime more than if regulators were pointing you in different directions." he said, calling inconsistency a "fair concern" for bankers.

"We are required to coordinate simultaneous exams to reduce the burden on financial institutions," he added. "We write common examination approaches, which we did with the mortgage rules, and we have joint training. … Right now we're in a happy place where the leadership of the different regulatory is fairly well aligned and can talk. Of course, that may not always be the case 10 or 20 years in the future."