Cordray: Give Rules a Chance

SAN DIEGO–Though some mortgage industry participants feared the worst from the Consumer Financial Protection Bureau’s Qualified Mortgage Rule, the worst never happened, said CFPB Director Richard Cordray. 

And the industry need not worry about the Bureau’s new “Know Before You Owe” mortgage disclosure rule, Cordray said here yesterday at the Mortgage Bankers Association’s 102nd Annual Convention and Expo.

Cordray said CFPB’s first task as a brand-new agency was to address “serious problems” in the mortgage market that he said led to the crisis. “When we put those new [QM] regulations in place, some were critical of our work,” he said. “For example, the Ability to Repay rule requires lenders to make sure that borrowers actually have the ability to repay their loans before extending them a mortgage.” He said some industry participants predicted that the rules would cause mortgage costs to double and would cut the volume in half. “They said that no one would make any non-QM loans because the risk of litigation was too great. They lamented that our rules would lead to the demise of community banks and credit unions, which would have to withdraw from the mortgage market altogether.” 

But Cordray said the rules have now been in place for almost two years, “and none of those anxious concerns have come true.” He noted that recent Home Mortgage Disclosure Act data showed that in 2014–the first year of the new rules–home purchase mortgages increased by 4.6 percent. “For jumbo loans, most of which are non-QM loans, the rate of increase was substantially higher and, so far as we can tell, there has yet to be a single case brought against a lender for making such a loan,” he said.

Cordray noted that just as people worried about the effects of the Qualified Mortgage rule before it took effect, some now complain about the “Know Before You Owe” mortgage disclosure rule. “They say that by requiring closing disclosures to be provided three days in advance, the rule will delay and disrupt closings,” he said. “They say that consumers will be forced to buy longer rate locks, which will drive up their costs.”

But those who complain do not understand what the rule actually says, Cordray said. “The rule does require that the consumer receive the Closing Disclosure three days in advance…But this does not mean that closing costs must be known to the penny three days before closing or that any changes of any kind will spell delay. Rather, subject to very limited exceptions, the Closing Disclosure can be corrected right up to the point of closing, and in some cases even afterwards, based on new or updated information.” 

Cordray said only three circumstances would require the closing to be delayed: if the basic loan product has been changed, if as a result of the corrections the annual percentage rate on the loan increases by more than one-eighth of a point for a regular transaction or one-quarter of a point for an irregular transaction or if a prepayment penalty is belatedly added to the loan.

“In those very limited circumstances we want consumers to be able to reconsider their options,” Cordray said. Other changes, such as modifications made after the walk-through or adjustments requiring seller’s credits, do not affect the closing date, and can be made using an updated Closing Disclosure without having to cancel or delay the closing.

“We are quite confident that the mortgage industry will be able to accommodate itself to these common-sense requirements,” Cordray said.