Insights

For most of the country, all eyes are on the upcoming national election. Many industries, entities and individuals are wondering how the outcome of this year's election cycle will impact them.  Certainly, as far as the federal government is concerned, the candidates and political parties that are elected to public office will shape the future of our country as they deal with pressing issues that face our country today.

The mortgage default industry is one area that is going through much change and some uncertainty from a regulatory standpoint.  In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed into law by President Barack Obama.  Dodd-Frank was enacted to address the financial crisis that hit the country in 2007.  Under Dodd-Frank, the Consumer Financial Protection Bureau (CFPB) was established "to make markets for consumer financial products and services work for Americans- whether they are applying for a mortgage, choosing among credit cards, or using any number of other consumer financial products." (see www.consumerfinance.gov)

Today, the CFPB is in the process of creating and implementing rules that can and will re-shape the financial services industry, and more specifically the mortgage default industry, for the future.  The CFPB is currently taking comments from mortgage lenders and servicers on proposed rules tackling everything from loan originations to default.  The comment period for some of the proposed rules closed in early October.  By January 21, 2013, the CFPB must have its rules finalized and issued.  The proposed rules can be viewed in their entirety at the CFPB's official website at www.consumerfinance.gov.

Besides the CFPB, the Office of the Comptroller of the Currency (OCC) is also implementing strict auditing procedures and rule changes for the national banks and federal savings associations that it regulates and supervises.  Whether one is in favor of or against the direction taken by the CFPB and OCC, all can agree that the increased oversight, regulatory requirement and rule changes are having and will continue to have a significant impact on mortgage lenders and servicers.   A lingering question on the minds of many in the financial services industry is this:  Will the new rules and regulatory requirements which are being proposed and implemented today be here to stay after the November 2012 election?

In general terms, the Democratic Party is viewed as being in favor of a larger federal government.  The Republican Party is viewed as having a more limited federal government approach.  Indeed, it was a Democratic Congress and Democratic President that introduced and signed into law Dodd-Frank, effectively increasing the size of government for the purpose of regulating banks.  This is not to say that there is no support among the Republican Party for any provision in Dodd-Frank or banking regulation, but it is fair to say that many leaders of the Republican Party believe that Dodd-Frank is replete with either unintended or unnecessary negative consequences on the banking industry. 

So what impact could the upcoming election have on the CFPB?  Howard Headlee, President of the Utah Banker's Association, gave some insightful commentary on this question.  Participating as a panelist at a recent Mortgage Regulatory Forum, he observed that there are four levers in play with the legislative and policy-making arms of the federal government: the House of Representatives, the Senate, the filibuster-proof Senate, and the Presidency.  Each lever plays an important role, and of course, the position of any one lever depends on which political party is in control.  And as far as the Senate is concerned, not only must one political party have a simple majority of members, but in order to take decisive action on polarizing issues (such as Dodd-Frank and the CFPB), must have a filibuster-proof majority (at least 60 of the 100 members). 

Mr. Headlee concluded that a change in either the Presidency or in the Senate alone, resulting from the upcoming election, would not be enough for the Republican Party to eliminate the CFPB and repeal Dodd-Frank completely (the Republican Party currently holds a majority in the House of Representatives).  "The CFPB is likely here to stay in some capacity at least," he said, "unless all four levers are controlled by the Republican Party." 

While it is possible that the Republican Party could take control of all four levers, it is not likely.  This is especially true in the case of obtaining a filibuster-proof majority in the Senate.  It is conceivable that the Republican Party will retain control in the House, gain control in the Senate, and/or also win the Presidency.  If this were to happen, the influence of the CFPB could be watered down.  But mortgage lenders and servicers should prepare as if the new rules and regulatory requirements which are being proposed and implemented today are here to stay in some capacity.