President Barack Obama and Richard Cordray meet with the Eason family, victims of mortgage fraud.
(Kevin Lamarque/Reuters)
Richard Cordray starts with a bang, and mortgage fraud is his first target. The Consumer Financial Protection Bureau
released its Mortgage Origination Examination Procedures on Friday, the guidelines for regulating mortgage lender practices "in both the bank and nonbank sectors of the industry."
“The mortgage market cannot work well for consumers if the spotlight shines only on one part of it, while the rest is left in darkness,” said CFPB Director Richard Cordray. “Our supervision program will illuminate the entire marketplace by making nonbanks play by the same rules as the banks.”
Until now, a significant part of the mortgage market — which includes independent lenders, brokers, servicers, and others unaffiliated with banks and depository institutions — has not been subject to federal supervision. This “nonbank” mortgage sector included many of the largest subprime lenders during the housing bubble. The Dodd-Frank Wall Street Reform and Consumer Protection Act significantly reformed the gaps in federal supervision of the mortgage market by providing the CFPB with authority to supervise a range of mortgage participants.
These product-specific procedures are an extension of the CFPB’s general Supervisory and Examination Manual. The Mortgage Origination Examination Procedures outline the CFPB’s supervisory approach to ensure mortgage originators — lenders and brokers — comply with federal consumer financial laws. In particular, the Mortgage Origination Examination Procedures describe the types of information that the agency’s examiners will gather to evaluate mortgage originators’ policies and procedures, assess whether originators are in compliance with applicable laws, and identify risks to consumers throughout the mortgage origination process. The examination manual tracks key mortgage originator activities, from initial advertisements and marketing practices to closing practices.
Which means they'll instruct regulators to do things like oversee whether lenders who offer subprime loans actually evaluate potential borrowers to ensure they can afford the mortgage and be able to make payments. The agency will also oversee lenders to make sure they are upfront and truthful about the terms and conditions of their loans, and that the information presented to potential borrowers isn't misleading or incomplete.