The Consumer Financial Protection Bureau is back — with a vengeance
As summer begins, while things may look relatively quiet on the CFPB mortgage servicing enforcement front, those of us who remember the CFPB’s early days following the 2008 foreclosure crisis have a different view: What we are seeing now has all the hallmarks of the calm before a huge storm.
President Joe Biden’s nomination of progressive firebrand Rohit Chopra to lead the bureau was the first hint, but the surprise move has been the very meaningful tenure of Dave Uejio as acting director. Despite his centrist credentials, Biden has skewed dramatically to the left with several key appointments and initiatives, and both he and Uejio have made racial equity an administration, and bureau, mantra. Uejio, further, is a wild card who has moved quickly to establish himself in his brief but substantive tenure as acting director.
In a video released June 2, Uejio again committed the bureau to racial justice, speaking in personal terms as a Japanese-American being the “target of hatred and violence on the basis of my race.”
“Rest assured,” he concluded, the CFPB will take action against institutions and individuals whose policies and practices prevent fair and equitable access to credit, or take advantage of poor, underserved and disadvantaged communities.”
On the mortgage front, the CFPB enforcement actions we see today are primarily the product of investigations commenced before the new administration. And while the CFPB has proposed rules to clarify technical aspects of COVID-19 relief implementation in loss mitigation, along with a temporary pause on foreclosures, we have yet to see the regulatory avalanche some anticipated.
But the dynamic has plainly changed, and the bureau has launched several warning volleys. On March 31, the CFPB issued Bulletin No. 2021-02, aptly named “Supervision and Enforcement Priorities Regarding Housing Insecurity,” warning servicers to:
[D]edicate sufficient resources and staff to ensure they can communicate clearly with borrowers, effectively manage borrower requests for assistance, promote loss mitigation, and ultimately reduce avoidable foreclosures and foreclosure-related costs.
Further, at a recent mortgage bankers conference, Uejio warned that servicers may be entitled merely to equitable foreclosure recoveries.
Housing security is likewise a focus of CFPB research. At the bureau’s fifth research conference in early May, researchers presented reports focused both on mortgage credit and housing security, “given that mortgage balances make up the largest component of household debt and housing equity accounts for the majority of wealth for the median homeowner.”
Likewise, on May 27, the bureau issued a report on manufactured house financing, decrying the high interest rates and credit barriers that the bureau claims afflict that industry.
Finally, the CFPB has joined other regulators in expressing interest and seeking information about artificial intelligence. Such scrutiny might adversely affect not just automated underwriting, but also the way mortgage servicers systemically deal with borrowers in distress.
This is a critical time for the CFPB, and we expect its regulatory and enforcement actions in the mortgage space to effect a sea change by 2022.
These early signals are just the beginning of what is likely to be a rocky ride for mortgage servicers. As disruptive as the past foreclosure moratoria and new loss mitigation requirements were, the result was to dramatically slow and, for long periods of time, outright stop the volume of foreclosures needing to be processed.
This period will likely be far more chaotic as servicers continue to implement the new programs and restrictions while at the same time returning to foreclosure and eviction volumes rivaling 2010. This will occur as the CFPB gears up for an intense few years of activity by ramping up staff with new hires.
Consider as well that, to date, the above has been occurring against the backdrop of rapid recovery of the job market and historically low mortgage interest rates. What will happen without a full recovery, and in an environment of rising interest rates associated with inflationary pressures?
Will this become an existential moment for the CFPB? We doubt it. But, if the public, and the politicians who answer to it, come to view the CFPB as having failed in this critical moment, structural reform — toward or away from either end of the ideological spectrum — would not be a surprising future outcome after the next presidential elections.
This likely will lead to splash headlines and major enforcement efforts from the CFPB directed at mortgage servicers, and a natural political target in times of stress. Resolving a now yearslong foreclosure backlog will likely give regulators a target-rich environment in which to work.