Broeksmit: New Reg Environment Brings 'Incredible Opportunity'

Mike Sorohan msorohan@mba.org

September 18, 2018

WASHINGTON, D.C.--It's an extraordinary environment in the Nation's Capital right now (let's just leave it at that). But behind the scenes, and in the halls of regulatory agenciesBobBroeksmit and Congress, says Mortgage Bankers Association President and CEO Robert Broeksmit, CMB, the real estate finance industry's efforts are starting to bear fruit.

"With the new regulatory leadership in Washington, we have an incredible opportunity for change while still maintaining consumer protections," Broeksmit said here yesterday at the MBA Regulatory Compliance Conference.

Broeksmit, in his first address to members since becoming MBA President and CEO in August, said with a new, but familiar FHA Commissioner in Brian Montgomery and a soon-to-be permanent director of the Bureau of Consumer Financial Protection (the Trump Administration has nominated OMB official Kathleen Kraninger), the Administration "brings fresh hope for beneficial change by saying all the right things" to make regulatory changes.

"They are listening to the industry and welcoming our recommendations," Broeksmit said. "But saying and doing can be two very different things. So we need to get to work. Let's adjust the overregulation that handcuffs our industry. The overregulation that prevents us from helping borrowers get the homes they need. We need the ability to better address the needs of underserved borrowers."

Broeksmit said he was encouraged by an announcement last week from five federal finance agencies, including the Bureau, confirming that supervisory guidance does not have the force and effect of law, and the agencies will not take enforcement actions based on supervisory guidance (https://www.federalreserve.gov/newsevents/pressreleases/files/bcreg20180911a1.pdf).

"We need to finally be relieved of regulation by enforcement," Broeksmit said. "And we need to bring regulations into the 21st century, enabling us to better serve the tech-savvy borrower."

To be clear, Broeksmit noted, "We still expect regulators to enforce the rules. We expect them to respond to violations, and protect consumers' interests. [Acting Bureau Director] Mick Mulvaney committed the Bureau to protecting consumers from unfair and deceptive practices and enforcing the law consistently. But he also committed the Bureau to identifying and addressing outdated and unduly burdensome regulations that impede competition, as required by law. This is a welcome change."

Broeksmit added the industry also needs a regulatory framework that allows us to serve the tech-savvy consumer. "Innovation being done by our membership will bring the industry to the forefront of customer service," he said. "But we can't do it alone. We need Uncle Sam to modernize regulations."

Current rules, Broeksmit observed, "were written in a paper-driven mortgage era. Which is not to say that when you're getting a mortgage you won't sign a few papers. But today's consumers want and need more flexibility. Through technology, we can lower costs, improve efficiency and enhance customer experiences."

Earlier this year, MBA sent a letter to Treasury encouraging adjustments in several government programs: widespread adoption of remote online notarization; Ginnie Mae acceptance of eNotes; Amendment of Federal Housing Finance Agency rules so Federal Home Loan Banks can accept eNotes as collateral for advances; ability of government loan programs to accept automated appraisal technology; and alignment of rules governing e-Closings to increase predictability, efficiency, and consumer credit access. Broeksmit said Treasury responded positively to each of these recommendations.

MBA also met with Paul Watkins, the new head of the BCFP Office of Innovation, to address regulations that impede technological progress. "He recognized that technology can be utilized to better protect consumers, thus furthering the Bureau's mandate," Broeksmit said.

"The spirit of the rules must remain," Broeksmit added. "But once again, they need to be brought into the 21st Century. Here's the bottom line: the changing regulatory environment does not mean an end to compliance. Your role as compliance professionals is still critically important. We still have our obligations to a safe, stable, and reliable market that focuses on the sustainability of homeownership. We still, of course, have ethical lending standards to uphold. My point is, we can have the best of both worlds. We can ensure consumer protection while at the same time promote a vibrant, competitive mortgage lending market."

Broeksmit outlined several top industry priorities:

--Underserved Borrowers. Broeksmit said FHA loans have historically served first-time and low/moderate-income borrowers as a pathway to homeownership. However, the risks associated with originating FHA loans have increased, causing some lenders to retreat. "To remedy this, adjustments should be made to ensure FHA loans serve their original intent," he said.

On the legislative front, Broeksmit noted progress in lending to underserved borrowers--in particular the self-employed. Sens. Mark Warner, D-Va., and Mike Rounds, R-S.D. introduced the bipartisan Self-Employed Mortgage Access Act, which will help expand access to mortgages for the self-employed, gig workers and other creditworthy individuals with non-traditional forms of income without jeopardizing consumer protections.

"Even in this contentious political environment, and with the midterms looming, it is very encouraging to see members from both sides of the aisle helping consumers become homeowners," Broeksmit said.

--Community Reinvestment Act. Last month, the Office of the Comptroller of the Currency released an advanced notice of proposed rulemaking to modernize CRA.

"CRA is an important law, one which has done much good," Broeksmit said. "But its implementation can be improved to work better for its targeted communities. MBA is assembling a member working group to be deeply engaged in this process. We want your input to show how banks can best meet the objectives of the CRA."

--Eliminating "Regulation by Enforcement." In addition to the guidance issued last week, Broeksmit said the BCFP can better protect consumers by publishing clear, consistent regulations and bright-line guidance in the rules.

"Clarifying rules will eliminate regulation by enforcement while still protecting consumers," Broeksmit said. "Ambiguity in the current rules leads to confusion and mistakes. Rules should provide appropriate guidance to facilitate compliance with federal law."

--Loan Originator Compensation. Among the dozen Requests for Information issued by the Bureau this year, Broeksmit said LO compensation tops the list. "We need the Bureau to provide common-sense exemptions and better guidance, so we can provide consumers with the best rates and customer service," he said.

--Bureau Complaint Database. Broeksmit noted more than 80 percent of the 31,800 mortgage-related complaints submitted to companies for review were solved with a simple explanation. "This suggests that the overwhelming majority of so-called ‘complaints' aren't complaints at all," he said. "They are inquiries, but they are all being tarred with the same brush."

MBA recommended a mechanism for companies to reclassify incorrectly labeled consumer complaints as "inquiries." "And the Bureau should also encourage consumers to attempt to resolve their issue with the company before submitting a complaint," Broeksmit said.

"MBA works for you every day and we need your continued engagement," Broeksmit added. "While MBA has relied on your expertise in shaping these rules, Your input today is even more important than ever. Making the right changes will unlock the regulatory handcuffs so we can serve more customers and serve them better."

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