MBA Letter Urges BCFP to Create Mortgage Industry Council

The Mortgage Bankers Association, in a letter to the Bureau of Consumer Financial Protection, called on the Bureau to create an advisory council focused on the mortgage industry and urged the Bureau to ensure that it receives input from diverse and varied viewpoints, including those of independent mortgage banks.

“The BCFP’s external engagements are an important component of the Bureau’s oversight of the mortgage market,” wrote MBA President and CEO David Stevens, CMB. “External engagement is an essential and mutually beneficial strategic function that results in better-informed and more effective policies, projects, programs and services. Effective stakeholder engagement provides Bureau decision makers with access to critical industry information and expertise. As a ‘data-driven agency,’ access to this information is essential.”

The letter–the latest in a series of MBA responses to more than a dozen BCFP Requests for Information–addresses ways in which the Bureau could improve its external engagement process. Key to this, MBA said, is establishment of a Housing Finance Advisory Council.

MBA said such an Advisory Council, focused on housing finance, would advise and consult with the Bureau in the exercise of its functions under federal consumer financial laws as well as provide information on emerging practices in the housing finance industry, including regional trends, emerging concerns and other relevant information. MBA proposed members of the Council to represent mortgage lenders of various sizes, geographical profiles and business types including depository and non-depository institutions as well as loan servicers and subservicers, consumer groups and industry trade associations. MBA said an Advisory Council, focused on the mortgage industry, is essential to the conduct of Bureau business.

“The Dodd-Frank Act focused heavily on the mortgage industry and the Bureau’s actions to date have continued that emphasis,” MBA said. “It is difficult to identify a consumer financial service that has been more impacted by Bureau actions than the housing finance sector. Through regulations such as the Ability-to-Repay/Qualified Mortgage rules, Mortgage Servicing rules, Loan Originator Compensation rules and the TILA-RESPA Integrated Disclosure rules, the Bureau drastically altered the regulatory framework which governs all facets of the mortgage lending industry.” MBA reasoned an advisory committee focused on the mortgage industry would thus improve the Bureau’s policy-making processes by broadening the evidence base and providing valuable perspective.

“Going forward, the Bureau will continue to alter the regulatory framework governing the housing finance industry,” MBA said. “Changes will hopefully result from mandatory assessments of significant rules under section 1022(d) of the Dodd-Frank Act, from the issuance of guidance and from future rulemakings. In addition, the Bureau will continue to exercise its supervisory authority over mortgage industry participants. Given the BCFP’s significant and persistent influence on the housing finance industry, it is crucial for the Bureau to meaningfully and consistently engage industry stakeholders. With a formal avenue for regular engagement, a mortgage industry-focused advisory committee would conduct “deliberations [that] will result in the creation…of policies or guidelines affecting agency business.”

MBA emphasized that the Advisory Council would provide important representation currently absent from other Bureau advisory groups–the Consumer Advisory Board, the Community Bank Advisory Council, the Credit Union Advisory Council and the Academic Research Council.

“The four current groups are not adequately representative of today’s housing finance landscape and therefore fail to provide a balanced view of the mortgage industry,” MBA said. “While each of the groups frequently addresses mortgage-related issues, they do so with an understandably limited perspective (i.e. from the perspective of credit unions or community banks). In addition, these groups exclude crucial industry stakeholders such as non-depository mortgage lenders (“independent mortgage lenders”) and independent mortgage loan servicers. An understanding of the role played by these stakeholders’ illustrates that this is not a small oversight. Non-depository mortgage lenders were responsible for 56 percent of mortgage loan originations during 2017. Moreover, these non-depository lenders are increasingly the lender of choice for low- and moderate-income borrowers.”

The letter noted during 2017, non-depository lenders originated nearly 75 percent of mortgages through the government guaranteed housing programs. “These lenders are impacted as heavily by Bureau regulations and oversight as are depository lenders,” MBA said. “Non-depository mortgage lenders are also subject to state regulations and oversight. The largest non-depository mortgage lenders must operate within 50 different regulatory environments. Given their large and crucial role in the market, and the complicated regulatory ecosystem in which they operate, non-depository lenders offer an expertise and perspective that is essential for effective Bureau policymaking and regulatory coordination. Their voice must be included as part of the Bureau’s formal external engagement strategy though the creation of a Housing Finance Advisory Council.”

Similarly, MBA said, independent mortgage loan servicers also play a critical role in today’s mortgage lending industry. “Much like mortgage lenders, mortgage servicers are directly regulated by the BCFP,” the letter noted. The Bureau’s impact on the servicing industry has been profound. According to recent MBA Servicing Operations Study data, the cost to service a performing loan has increased from $59 to $163 per loan per year from 2008 to 2016, while the cost to service a non-performing loan has risen from $482 to $2,884 per loan per year over the same time period. Further, as servicers engage with borrowers throughout the life of the loan, they’re well-positioned to speak to the borrower experience or spot potentially noteworthy trends and thus offer an essential perspective for Bureau policy making.”

MBA also said the Bureau must regularly evaluate its external engagement efforts to ensure that it accounts for technology-driven changes to the mortgage lending industry. It noted technological innovations in the financial services space, commonly referred to as “fintech,” are transforming the housing finance industry.

“Given the vast scale and rapid pace of change, the Bureau must endeavor to maintain an understanding of relevant fintech developments and understand both their potential and current deployment in the marketplace,” MBA said. “Failure to do so risks inhibiting the adoption of technology that could further important Bureau objectives such as promoting a well-functioning market for consumer financial services and ensuring a level playing field for market participants. Further, without an adequate understanding the Bureau is unable to identify, assess and mitigate the risks associated with fintech innovations.”

MBA suggested frequent outreach, through formal meetings and more informally, to knowledgeable vendors as well as to nascent innovators “is crucial in ensuring that market innovations are appropriately grounded in the regulatory structure.”