The Consumer Financial Protection Bureau (CFPB) maintains regulatory authority over independent mortgage banks, custodians, fintechs and the reverse mortgage industry at the national level, and has also seen some specific developments related to its interactions with the mortgage industry. reverse mortgages. as a new existential threat emerges in the form of a ruling by the United States Court of Appeals for the Fifth Circuit.
Recently, the CFPB issued a Request for Information (RFI) on Mortgage Refinances, Loss Mitigation and Forbearance to determine how mortgage refinances could be made easier for those who can benefit most, and how mitigate risk for consumers who have the capacity to pay their interrupted mortgage balances.
RFI specifically requested input from older Americans and the financial services that serve them, and managers are preparing to offer input to the Bureau based on conversations with RMD.
Additionally, the Fifth Circuit’s decision has created a new challenge to the Bureau’s constitutionality, which could impact the regulatory climate in which the reverse mortgage industry operates.
RFI, repairers respond
In a statement released alongside the RFI from the CFPB’s Office of Older Americans, the resulting actions could have a potential impact on mortgage policy for older adults, even though the cohort is not specifically referenced in the RFI document to them. -same.
“Older adults make up a growing share of people with mortgages, and more are carrying mortgages in retirement while relying on fixed incomes,” the statement said. They also hold a wide range of mortgage products, including home equity loans and reverse mortgages.
Additionally, the senior cohort is part of a larger group of borrowers known to refinance their mortgages, which means that feedback that may come from seniors and other stakeholders who may serve the senior community, particularly in the mortgage sector, could be the subject of welcome comments.
According to National Reverse Mortgage Lenders Association (NRMLA) President Steve Irwin, reverse mortgage servicers are currently absorbing RFI and gearing up to offer substantial responses.
“The Bureau has issued a request for information on ways to improve loss mitigation, and our services are prepared to submit responses to this request for information,” Irwin told RMD in an interview. “We look forward to opening the dialogue about enhancing loss mitigation opportunities in the FHA-insured HECM reverse mortgage space.”
For the service company portion, reverse mortgage sub-service Celink confirmed that they are part of the conversation and are working with the trade association to provide the requested information.
“It’s still being actively worked on by repairers and the NRMLA,” said Ryan LaRose, customer and industry relations manager at Celink. “The NRMLA will then consolidate industry responses and submit final comments to the CFPB.”
New constitutional challenge
The United States Court of Appeals for the Fifth Circuit concluded last week that “the CFPB’s design violates the Constitution because it receives funding through the Federal Reserve, rather than through appropriations legislation passed.” by Congress,” according to an article about the Politico decision. “Democrats established the structure when they created the CFPB in the 2010 Dodd-Frank Act to shield the bureau from political pressures that could impact its oversight of the financial sector.”
The panel also struck down a 2017 small-dollar lending rule, a longtime target of payday lender advocates, though parts of that rule have already been affected by the Trump administration’s differing enforcement philosophy. under former director Kathleen Kraninger in 2019.
The rule was designed as a way to protect financially vulnerable payday loan borrowers from large amounts of debt that can quickly accumulate through the use of these types of loans.
This is the second major challenge to the CFPB’s constitutionality in recent years, with the previous major challenge going all the way to the U.S. Supreme Court, which ultimately found the one-manager structure to be unconstitutional. but the Bureau itself was allowed to present itself. .
What the ruling could mean for the reverse mortgage industry and borrowers
Regarding the potential impacts the loss of the CFPB could mean for the reverse mortgage industry and senior borrowers, RMD reached out to Sarah Bolling Mancini, reverse mortgage expert and attorney at the National Consumer Law Center (NCLC) .
“The regulations issued over the past eleven years by the CFPB are all at risk if the Fifth Circuit’s ruling stands,” she told RMD. “These regulations have brought important clarity to financial institutions, including reverse mortgage lenders and managers. Making all of these regulations obsolete would create disruption in both the reverse mortgage market and the broader mortgage market.
A key example she cites is Home Equity Conversion Mortgage (HECM) mortgages, which could still interact with the outgoing LIBOR (London Interbank Offered Rate) index.
“HECM adjustable rate loans linked to the old LIBOR index would no longer be protected by the CFPB rules which provide a safe harbor for lenders who substitute a specific alternative index for LIBOR in existing consumer contracts,” it said. she declared.
There would also potentially be a lack of clarity for reverse mortgage lenders as to how to comply with the Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) at the time of lending. granting the loan if CFPB regulations go away, she said.
“The outcome of the Fifth Circuit’s three-judge panel is detrimental to both consumers and financial institutions,” she concluded.
Resolving the matter will likely take some time, so all entities under CFPB jurisdiction will need to continue to comply with all applicable regulations until a final decision is made, which could take some time. years according to experts who spoke to RMD. However, companies that are currently facing enforcement action may have the opportunity to raise the recent decision in their own case.
This was a tactic recently employed by consumer credit reporting giant TransUnion in its own lawsuit with the CFPB according to reports by Law360. However, the Bureau fired back and issued critical words about the decision in that case, telling an Illinois federal judge that it made no sense and provided no reason for TransUnion to escape prosecution. law enforcement, the Bureau would have argued.