CFPB Legal Capacity Diminished by Trump.  All Bark No Bite Threat to the Banking System.  How Does this Affect Mortgage Products?

Since President Trump took office, he has been working hard at scaling back parts of the Dodd Frank Act, including the legal capacity and scope of the CFPB Consumer Finance Protection Bureau. Director Mick Mulvaney has been busy with a number of changes that some say will take the bite out of the agency and affect consumers and how they get mortgages.

When Mulvaney became the acting director of the CFPB in January, he told the agency staff that the philosophy of the previous director was to push the envelope in its mission to root out what the previous director said were ‘the bad guys’ in the financial world.

Mulvaney has said that the notion of pushing the regulatory envelope scares him somewhat; he thinks it is inappropriate for any federal government entity to push the regulatory envelope looking for a ‘bad guy.’ Mulvaney noted that he would only look to file lawsuits against unavoidable and quantifiable harm. The agency is relying more on its efforts for rule-making as a change engine rather than enforcement, so the CFPB is not looking as much at lawsuits and fines to scale back bad financial behavior. Rather, the CFPB is looking to create and implement new rules, rather than changing dangerous financial practices.

In the several months since Mulvaney has been leading the CFPB, he has brought in policies that are reducing rulemaking, enforcement and personal data being collected. Some argue that enforcement was the biggest area the CFPB has had an impact on yet. The new rules for payday lenders, mandatory arbitration and prepaid cards were thought to be major victories for the CFPB, but they all are being slowed or killed since Mulvaney took leadership.

The new direction of the CFPB has had many fearing that Mulvaney would actually shut down the agency, or at least gut it from the inside. Mulvaney has told people in the agency that the law does not allow him to actually shut down the CFPB. But there is no question he is working to scale back its ambitions. This past January, the acting director requested the Federal Reserve not give the CFPB any money for Q2 2018. Instead, he said the CFPB should use some of its $177 million reserve fund to handle current operations. With this new mission being laid out by the Trump administration, it is making clear that the CFPB is going to be smaller, quieter and not as active a financial regulator.

The CFPB and the Mortgage Markets

One of the aspects of the Dodd Frank Act that was seen as important was attempting revamp how mortgages were underwritten in the US. Before the last crash, it was possible to get a mortgage with limited assets, little documentation, and even without proof of employment. These days under Dodd Frank and the CFPB, it is difficult to get a mortgage unless you actually can prove that you have income and a job. This is not going to change under the different scope of the CFPB.

The mortgage market in many ways is as healthy as it has been in a long time. While interest rates are considerably higher than they were a year ago, incomes are also higher, and unemployment is lower. As the economy is getting better, mortgage rates continue to go up, with a conventional, 30-year mortgage rate now at 4.75%.

The higher rates seem to have been driving more people buying homes because some are afraid that prices will continue to climb. Many financial experts expect mortgage rates to go through the important barrier of 5% in the not too distant future.

Mortgage rates mostly depend upon what investors expect. Good economic news in recent months conversely tends to be bad news for interest rates because a strong economy increases fears about inflation. Inflation leads to some fixed rate investment products such as bonds to lose their value. The possibility of inflation makes bonds not as appealing. When fewer people want bonds, the price for them decreases, and rates will rise in response as more people are putting their money into other investments.



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