Just hours ago, President Obama took the bold political step of using a recess appointment to name Richard Cordray as the Director of the Consumer Financial Protection Bureau (CFPB), effective through the end of the U.S. Senate’s next full session (i.e., year end 2013).  The official announcement was made this afternoon at a campaign-style event in Cleveland, Ohio, a key presidential battleground state.  Cordray’s appointment comes over significant objections from both House and Senate Republicans to the governance structure of the bureau.  While not objecting to Cordray’s qualifications per se, Republican leaders had been using procedural measures (pro forma sessions) to prevent a recess appointment absent structural changes.  Today’s action promises to further exacerbate the political tensions between Democrats and Republicans.

Unless Cordray’s appointment is ultimately found to be unlawful and an injunction issued against the CFPB’s exercise of its new powers, the Bureau will now be able to implement its full range of authority under the Dodd-Frank Act, including the ability to regulate non-bank financial institutions and to issue rules dealing with unfair, deceptive, and abusive acts and practices.  Without a Director, the CFPB was limited to using those powers inherited from existing banking regulators.  While MBA supports the goal of stronger consumer protection through a unified regulator, a fully empowered CFPB presents a number of new challenges for our industry.

You should be aware that, despite the politics involved, MBA has taken steps to establish a positive working relationship with the CFPB’s leadership, including my own personal outreach to Mr. Cordray.  We will continue our efforts – including direct MBA member engagement — to help ensure that the CFPB understands issues important to our industry and crafts appropriate policies.

At the same time, MBA continues to support the need for important structural changes to the CFPB, namely that the Director’s position be replaced by a five-person Commission, that the CFBP be subject to the normal congressional appropriations process, that CFPB rules be subject to review by the Office of Management and Budget (OMB), and that votes to overturn CFPB decisions by the Financial Stability Oversight Council (FSOC) take a simple majority rather than a 2/3 vote.  In short, the CFPB’s influence on the financial services sector will be unprecedented, and MBA will continue to urge that appropriate institutional checks and balances be in place to ensure that the CFPB’s authority is used wisely and judiciously.

More than ever, I believe it is critical that any new regulatory policies impacting mortgage finance are sound and well-reasoned.  MBA will be working with our members and other industry and consumer groups to make sure our voice continues to be heard in the coming CFPB policy debates.

This message, including any attachments, contains confidential information intended for a specific individual and purpose, and is protected by law.  If you are not the intended recipient, you should delete this message and you are hereby notified that any disclosure, copying, or distribution of this message, or the taking of any action based on it is strictly prohibited.
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Investing in communities
David H. Stevens
President and Chief Executive Officer
Mortgage Bankers Association
1717 Rhode Island Avenue, N.W., Suite 400
Washington, DC 20036
Phone: (202) 557-2701
Fax: (202) 289-3943
dstevens@mortgagebankers.org
www.mortgagebankers.org

December 23, 2011

 Mr. Edward DeMarco
Acting Director
Federal Housing Finance Agency
1700 G Street, NW, 4th Floor
Washington, DC 20552

Submission to: Servicing_Comp_Public_Comments@FHFA.gov

The undersigned thank the Federal Housing Finance Agency (FHFA) for the opportunity to comment on its “Alternative Mortgage Servicing Discussion Paper,” released on September 27, 2011.  The world of servicing has undergone unprecedented stress over the course of the economic downturn.  We therefore appreciate the interest of FHFA and other regulators in ensuring that we collectively work to improve service to borrowers, reduce financial risk to servicers, ensure flexibility for guarantors to better manage non-performing loans, promote market liquidity and enhance opportunities for competition in the origination as well as servicing markets.

 However, we believe that any change to the current servicing compensation model is unnecessary to accomplish these goals.  The current system has served the market well for decades and still remains a viable option, even in these tumultuous times.  Furthermore, any consideration of changing mortgage servicing compensation is premature in light of the ongoing process of developing national servicing standards, in addition to the constantly changing regulatory environment due to the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

 While we do not endorse a change to the current servicing compensation model, we do recognize that there is a feeling amongst the regulators that there is a need for change.  If FHFA feels strongly that making fundamental changes to the servicing fee structure is necessary, of the options presented in the September 27^th discussion paper, we urge FHFA to adopt the cash reserve model.  Of the two proposals presented, it is the only one which truly meets FHFA’s stated objective while ensuring minimal disruptions to the market.

The Cash Reserve Proposal, originally introduced by MBA and the Clearinghouse, establishes a minimum “normal servicing fee” and proposes the creation of a reserve account which servicers can use to conduct catastrophic nonperforming loan servicing.  The reserve would be built up over time by placing a small portion of the mortgage cash flow (e.g., 3 bps) into a custodial reserve account, tied to a particular vintage of loans.  Any unused portions would eventually be refunded to the mortgage servicer if they are not required to cover unanticipated operating costs of the servicer.  Under this structure, use of the reserves should be the exception, not the rule, and would not be expected to occur under normal market conditions.

We believe that this approach is the best of the options presented, though we would reiterate: the fact remains that despite the issues in the mortgage servicing market and the need for investment and training in servicing, the current mortgage servicing compensation structure is appropriate and suitable to meet the needs of the market.

Thank you for your consideration of our comments.  If you have any questions, please contact (480) 538-5565.

Sincerely,

Jannine Bielesch
Regional Manager, US Bank
2012 Vice President Elect of Advocacy – Arizona Mortgage Lenders Association

Don Hagan
President Elect 2012 – Arizona Mortgage Lenders Association

As members of AMLA, we are providing you with this call to action to ensure that you are aware of events taking place, and additionally, request that you take action.  There is a piece of legislation that has grown legs, has gained much support and is moving too fast without taking into consideration the harm that it will cause to the housing industry.

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