Mortgage-Rule Concerns Overblown, Cordray Says

WASHINGTON — Consumer Financial Protection Bureau Director Richard Cordray defended the agency's new mortgage rules, data-gathering activities and single-director leadership structure during a luncheon speech on Wednesday.

Fielding questions from attorneys and consultants at the Exchequer Club, Cordray argued the ability-to-repay rule and the creation of an ultrasafe class of loans known as "qualified mortgages" will not significantly raise the cost of most mortgages or impair credit availability. Lenders have warned that few banks will want to make loans that are not considered QM, which must comply with certain underwriting criteria.

"I think there has been more hubbub around these requirements than is perhaps justified," said Cordray, adding that "anxiety" over the rule won't stop lenders from making non-QM loans.

For a lender "to not make those mortgages and leave that money on the table and leave people un-served because of some vague fear that they can't quite articulate; that doesn't sound to me like the kind of good decision-making that lenders have made for years."

Cordray argued that the average cost for a non-QM loan is estimated to be less than 10 basis points higher than a qualified mortgage.

"We would be glad to have a discussion with people who want to dispute that notion," he said with regard to the agency's cost figures.

Cordray also disputed the argument that a significant portion of the current mortgage market would not be considered a qualified mortgage. He said the agency agrees with estimates from Mark Zandi, the chief economist of Moody's Analytics, who said about $20 billion of the $1.25 trillion mortgage market would fall outside of the QM definition.

"So our QM rule would be covering more than 98% of the current market," Cordray said. "We think that's probably accurate."

Still, Cordray cautiously agreed that the QM rule may create a "break" in the secondary market "to some degree."

"But that's hard to say for sure," he added. "There's many different influences and factors so we'll have to see over time."

Cordray also used the appearance to justify why the agency has been collecting vast amounts of data on the mortgage market. Both the banking industry and lawmakers have raised concerns about what the agency is doing with its extensive and costly data gathering.

Cordray said it was necessary, in part, because of the lack of comprehensive data available in past years.

"The last five years of the mortgage market [was] an unnaturally cold mortgage market. And the data from five years before that was an unnatural market of the other extreme. So what is normalized data that can guide policy making? That is a puzzle," he said. "The other thing is there are many shoes yet to drop here and we're trying to anticipate the mortgage market going forward and how the QM rule affects it."

He said that the information being gathered now will help better prepare the CFPB's future director.

"Someone, someday will be in my position five to 10 years down the road and they'll be more surefooted about policy decisions that we've had to make based on the mortgage data," he said.

Cordray also addressed the ongoing issue of his own confirmation, which has been stalled by Republicans who argue the CFPB structure should have a commission instead of a sole director.

"I don't profess to probe the internal mysteries of the congressional mind" of those who wrote the Dodd-Frank Act, Cordray said. "Organizations can operate in different ways" but the CFPB structure allows "us to have nimbleness in going forward and moving the agency."

Another issue raised by the audience was whether the use of disparate impact would conflict with the QM definition. Disparate impact can be used to accuse a lender of discrimination if a policy or practice has an unintentional adverse impact on a protected class. This broad definition can be tricky when it comes to the qualified mortgage rule that is more specific on the type of borrowers banks should lend to if they want safe harbor protections. Industry observers have argued the QM rule could accidently make it appear that they favor one class over another.

Cordray said that the use of disparate impact has been around for a long time, and only recently blown up into a larger concern. He said the agency would continue to look at the issue.

"If you're doing solid, responsible lending and you're mindful of the fact that there are fair-lending concerns around it … I don't know that you need to change what you've been doing," he said. "But we may have more to say about this over time."