-
Patrice Ficklin, the CFPB's assistant director for fair lending, provided a glimpse into the bureau's fair lending work at a housing conference in Washington Wednesday.
April 19 -
The Justice Department's latest fair lending report shows the agency has no signs of slowing its enforcement activity, which peaked in 2011 with the help of banking regulators.
March 30
LAS VEGAS — Mortgage lenders are scrambling to prepare for an onslaught of exams by the Consumer Financial Protection Bureau and they have identified several themes the bureau is likely to focus on by parsing through the recent settlements with credit card companies Capital One, Discover Financial Services and American Express.
Bank lawyers, consultants and lenders who gathered at a mortgage conference this week say the data-driven CFPB is primarily concerned with the quality of data reported to regulators under the Home Mortgage Disclosure Act. Banks and thrifts already must report HMDA data to their primary regulators, and the CFPB has the authority to apply it to nonbank mortgage lenders.
The bureau also is focused on ferreting out lenders with large numbers of consumer complaints and in determining if mortgage applicants are discriminated against — even unknowingly — due to lax policies and procedures, experts said.
"You have to have your HMDA right and be focused on vulnerable customers," Jo Ann Barefoot, a co-chairman at Treliant Risk Advisors, told mortgage lenders at an Ellie Mae conference, which drew about 1,200 bankers, compliance officers and nonbank mortgage lenders.
Angst over fair-lending enforcement was palpable at the conference as mortgage lenders — particularly nonbanks that generally do not have fair-lending programs — asked questions about what could get them into hot water with their new regulator. For example, they wondered if they would be dinged by the CFPB for such practices as giving a lower interest rate to a borrower with a high credit score who has made a substantial down payment.
"If you have pricing flexibility, you better test to see who got what price and whether protected classes are paying more," said John Konyk, an executive director of government affairs at the law firm Weiner Brodsky Sidman Kider.
The bureau will produce "transformational change" in the lending industry, said Barefoot, a former deputy comptroller of the currency who was one of
The CFPB has no jurisdiction over the Community Reinvestment Act, but Barefoot and others are convinced that the agency will seek to make nonbank mortgage lenders meet at least some CRA requirements, which are aimed at reducing discriminatory credit practices in low-income neighborhoods.
"They are determined to make it unprofitable if you do things that are considered unfair ... by hitting companies with eye-popping penalties," said Barefoot.
Mortgage lenders fear the CFPB is on "a fair-lending jihad" and they are looking for insight from attorneys and consultants about how to stay out of trouble, Konyk said,
Of particular concern is the agency's independent litigating authority under which it can bring fair-lending cases against banks and nonbanks in federal court.
It can also hold adjudication proceedings before bureau administrative judges, who can issue cease-and-desist orders and penalties and provide relief to borrowers.
Jim Brodsky of Weiner Brodsky said the CFPB has scheduled 48 exams of bank and nonbank mortgage lenders. Exams can last up to three months and often include enforcement attorneys and state examiners.
"It's rigorous, it's challenging, it's intrusive," Brodsky said.
Lawyers and consultants provided some insights into how mortgage lenders can prepare for CFPB exams:
• Pay close attention to the quality of HMDA data, one of the primary tools used to search for predatory lending and fair lending violations. The CFPB will seek to confirm whether data is accurate. It will be expanding the data fields included in HMDA next year.
• Check the accuracy and dependability of disclosure documents given to consumers. In the recent settlements with Capital One, Discover and American Express, regulators cited violations of federal law in marketing and disclosure documents. "They are customer-centric," said Barefoot. "The bureau is interested in the customer experience and if the customer thinks they were harmed unfairly."
• Conduct mock exams by identifying practices and policies that could potentially affect a protected or vulnerable class. "If there is an area of the market you do not service, you have to be ready to explain why you are not servicing that group," said Konyk.
• Ensure that compliance and legal personnel are communicating with sales and operations teams. Lawyers caution that if a lender's compliance staff is found to have discussed a critical issue with loan officers but nothing changed as a result, the outcome with the CFPB could be much worse. "You have to document in writing why you did what you did," said Steve Jacobson, chief executive at Fairway Independent Mortgage.
• Invest in technology. Gone are the days when regulators asked for just 20 loan files to review, says Brodsky. The bureau prides itself on being a technology innovator, and examiners are reviewing 100% of a mortgage lender's loan files, he said.
• Do not wait for clarity — you won't get it any time soon. Mortgage lenders have to comply with a slew of new rules and regulations from different agencies. It may be difficult to navigate an uncertain regulatory landscape, but waiting for guidance is a "suicidal strategy," Barefoot said.
Because regulators are willing to send a strong message, including stiff penalties, to financial institutions, being proactive in addressing consumer protection issues is the best approach. "In this new environment, they are looking for the clueless people," Barefoot said.
