America is in a “full damage control mode” while the Federal Reserve attempts to control inflation, inflicting pain on the mortgage industry – and that’s when “bad policies have a habit of rearing their ugly head,” according to Mortgage Bankers Association (MBA) president and CEO Bob Broeksmit.
The main threat now comes from the Consumer Financial Protection Bureau (CFPB), where the director can act as “judge, jury, and executioner, all in one,” Broeksmit said in the opening remarks at the 2022 MBA Annual Conference in Nashville on Monday.
“Americans need the CFPB to establish clear and consistent standards, providing the opportunity for notice and comment when enacting rules,” he said. “Unfortunately, the Bureau isn’t always abiding by this commonsense system, announcing new legal obligations without formal process or deliberation, enforcing novel and untested legal theories, and making it very difficult for firms to understand their legal obligations.”
The CFPB has been in the spotlight over the last week – a panel of Trump-appointed judges on the Fifth Circuit U.S. Court of Appeals determined that its funding source is unconstitutional. The Bureau receives funding through the Fed rather than appropriations legislation passed by Congress.
The plaintiffs, the Community Financial Services Association of America and the Consumer Service Alliance of Texas, argued the CFPB’s payday rule was made arbitrarily and capriciously and exceeded its statutory authority. They challenged the CFPB’s structure, its powers granted by Congress, and the CFPB director’s protections from removal, claiming they were all unconstitutional.
The CFPB itself has thus far declined to say whether it will attempt to appeal the decision. However, a CFPB spokesperson told Politico, first to report on the topic, that the agency’s ongoing work will remain unaffected for the foreseeable future.
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The expectation, according to Broeksmit, is that the Bureau will “undoubtedly” appeal the decision, including to the Supreme Court, if necessary.
“And the Supreme Court is likely to hear it because this is a pretty consequential matter,” he said. “All of that will probably take two years, and we expect that any further challenges to the Bureau that might pop up in the Fifth Circuit will stay pending this outcome.”
The MBA CEO said that, despite his criticisms of the CFPB, “we do like to settle rules that give us some safe harbors for the way that we make mortgages and we don’t want that to all go away.”
Another mortgage industry trade group leader told HousingWire that the rule’s immediate impact on the industry is minimal. “But if upheld by the Supreme Court, the impact would be huge – the CFPB would have to go to the Congress for funding, so its staff and funding could shrink significantly, as could the scope of what they do,” he said.
Turbulent times in mortgage
Broeksmit also made comments on the turbulent time for the mortgage industry.
“We went from the highest of highs to some of the lowest lows in recent memory,” he said. “This time last year, we were celebrating our second $4 trillion year in a row. Now refis have fallen 85%, and purchase loans are down 15%. We’re looking at the lowest volume of new loan applications in 22 years.”
He added: “We all know what’s driving the current disheartening trends. You can sum it up in a single word– inflation. Twelve months ago, inflation was starting to get on people’s radars. Then, seemingly out of nowhere, it hit records we haven’t seen in more than 40 years.”
The Fed, according to Broeksmit, will continue taking aggressive steps – meaning hiking rates – to combat inflation, which will bring short-term struggles, far preferable to the long-term damage that endless inflation would do.
“There are many factors behind the economic mess we’re in, such as COVID-related government spending, worker shortage, supply chain issues, a massive war halfway around the world. But people can’t point the finger at the mortgage industry. Our current situation is the exact opposite of the Great Recession.”