Prepared Remarks of CFPB Director Richard Cordray at the Mortgage Bankers Association
October 26, 2016 / Source: CFPB
By Richard Cordray – OCT 25, 2016
Thank you for having me today. Over the past five years, the Consumer Financial Protection Bureau and the Mortgage Bankers Association have each been working in our own ways to revive a mortgage industry that was devastated by the financial crisis. During the run-up to the crisis, we saw established traditions of responsible lending pushed aside by predatory actors whose misconduct hurt millions of Americans. It led to disruptions in the mortgage markets, transmitted through securitization channels to the broader financial system, which triggered its collapse. In the wake of that crisis, you have been doing the hard work of extending credit at a time when economic activity was greatly impaired by extreme financial conditions. You have undergone intense scrutiny, including from within your own ranks, to diagnose what happened.
Even now, eight years later, we have not yet returned to normal conditions. The secondary market for mortgage financing remains moribund, and interest rates stand at historic lows. Although home foreclosures, mortgage delinquencies, and underwater mortgages have all declined steadily, they still affect millions of consumers who continue to feel the effects of the crisis. The pace of recovery has clearly been uneven around the country, particularly in communities of color. And I agree with Federal Housing Finance Agency Director Mel Watt that the market is not yet supporting access to credit for the full spectrum of creditworthy borrowers; average credit scores for home purchase loans are still above the levels historically viewed as normal from past years.
Nonetheless, we are seeing more and more encouraging signs. New home sales are up 20 percent year over year, while existing home sales are back up to pre-boom levels. Home prices are rising in many areas and positive homeowner equity is now at a record level, pushing $13.5 trillion. By the middle of this year, delinquency rates hit a ten-year low, and foreclosures were the lowest in 16 years. Consumers who had been shut out of the mortgage market for years by prior foreclosures are now returning. And the much-dreaded resetting of troubled home equity lines of credit issued in the years just before the crisis is now being accomplished with minimal disruption.
Notably, the first set of mortgage rules that we adopted took effect in January of 2014. That year, home purchase mortgages rose by 4 percent, according to the Home Mortgage Disclosure Act data. In 2015, they picked up steam, rising by almost 14 percent. Preliminary data for this year indicate that the growth trend continues to advance strongly. Even the millennials, many of whom have put off forming households until they were older, now seem to be starting to enter the market. And we are seeing many lenders willing to make sensible jumbo loans. Some of those are non-Qualified Mortgage loans, as more lenders come to recognize that their initial anxieties over the feared legal risks have not materialized.
We firmly believe that through our work in this area, the Consumer Bureau has played an important part in these developments. We know that sometimes you are focused only on one side of the equation, namely the compliance costs you have incurred in implementing the rules we issued. That is a fact, but it is an inevitable one. No economic sector that precipitates a global financial meltdown could possibly expect to escape far-reaching reforms, as the Congress so dictated. But the safeguards we have put in place around underwriting, servicing, and loan originator compensation have improved industry performance, promoted responsible lending, and helped restore consumer trust that was badly shaken by the events of the past decade. These improvements benefit responsible lenders just as much as they benefit consumers.
By issuing our first set of regulations, we also bought you some crucial time by avoiding the immediate and self-executing directives that Congress had enacted in Title XIV of the Dodd-Frank Act. That could have been a calamity, but it was averted. Instead, our rules helped facilitate the implementation of the new law and reduced the burden you otherwise would have experienced. Through the GSE patch in the Qualified Mortgage definition, we avoided disruption to the fragile mortgage market that existed in the wake of the crisis. By adopting a reasonable “good faith” approach to oversight of the Ability-to-Repay rule, we met industry halfway by working with our fellow regulators to assure that our early examinations would be sensitive to the good faith efforts you made to come into compliance and thus would be diagnostic and corrective. And that is exactly what we have done.
We have also shown our commitment to collaborate with you by our extensive work on regulatory implementation. Through innovative approaches like blog posts, plain-language guides, webinars, and our e-regulations tool, along with more traditional resources like responses to inquiries, we have acted out our philosophy that once we have adopted and finalized a new rule, it is never simply “your problem now.” Instead, we maintain focus on how we can work together to ease compliance and make sure the new rules are implemented successfully. And rather than hide defensively behind a stubborn pride of authorship, we have not hesitated to revisit our rules when we are persuaded that we need to fix unexpected problems, clarify issues, or relieve unnecessary compliance burdens.
So the bottom line is that we have come a long way in a short time. The tasks were immense, and they created real strain, both on your end and on ours. But the mortgage market is now in much better shape because of all our joint efforts. And we remain open-minded, in constant listening mode, about how we can identify further improvements as we move forward together.