Second CFPB Fight May Be Just as Contentious as First

By Joe Adler

JAN 24, 2013 5:18pm ET

WASHINGTON – Here we go again.

Richard Cordray was reintroduced Thursday as the administration’s long-term choice to run the Consumer Financial Protection Bureau, but huge questions remain over whether his second nomination for the job is any more likely to be approved than his first.

Immediately out of the gate, Republican leaders – still fuming over Cordray’s recess appointment a year ago – challenged the move. Their position appears identical to when, in May 2011, Republicans mounted a campaign to block any potential director to run the bureau – including both Cordray and CFPB-architect Elizabeth Warren – unless the administration supported reforms to its structure. Those included establishing a commission to run the agency.

“Today’s decision to renominate Richard Cordray to be Director of the Consumer Financial Protection Bureau after using an unconstitutional recess appointment is premature, given the outstanding concerns about the bureau and the legal challenge to the recess appointment,” Sen. Michael Crapo, R-Idaho, the new ranking member on the Banking Committee, said just moments after Cordray’s re-nomination was announced. (President Obama also announced the nomination of former prosecutor Mary Jo White to head the Securities and Exchange Commission.)

“Until key structural changes are made to the bureau to ensure accountability and transparency,” Crapo added, “I will continue my opposition to any nominee for director . If the president is looking for a different outcome, the administration should use this as an opportunity to work with us on the critical reforms we have identified to him.”

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, echoed that sentiment, saying he hoped “the decision to re-nominate Mr. Cordray will open the debate about whether some common sense checks and balances will be placed on a massive bureaucracy that is now totally unaccountable to the American people.”

Still, some believe Cordray’s renomination for the job may draw more support than the administration’s first attempt to get him confirmed in 2011, with a few political factors changed and positive reviews of Cordray’s performance since he was installed a year ago through a controversial recess appointment.

“It’s a new day,” said Camden Fine, president and chief executive officer of the Independent Community Bankers of America. “I don’t think this is going to be a walk in the park, but I certainly think that Mr. Cordray will get a fair hearing. I don’t think that the criticism will be as harsh as it was last time around.”

To many, the nomination was surprising. Cordray had given numerous signals he was not interested in a long-term slot and wanted to return to Ohio – where he was the attorney general – after his recess appointment expires at the end of this year to run for governor. Focus instead had shifted to who would succeed the outgoing Raj Date as the CFPB’s deputy director. (By statute, the agency’s No. 2, who does not need Senate confirmation, would automatically become the bureau’s interim leader after Cordray’s recess appointment expires.)

But some said his renomination may reflect Cordray’s desire to make a more lasting imprint on the still-young agency.

“I wasn’t sure he wanted to stay in Washington” but “he may feel that since he started the job that he wants to see it through,” said Jeffrey Taft, a partner at Mayer Brown. “He was responsible for getting the agency going, and now he can try to leave a lasting mark.”

In his press conference, Obama said Cordray has “proven to be a champion of American consumers.”

“Richard has earned a reputation as a straight shooter and somebody who is willing to bring every voice to the table in order to do what’s right for consumers and for our economy,” Obama said, adding that the Senate should confirm both nominees as early as possible. “Richard’s appointment runs out at the end of the year and he can’t stay on the job unless the Senate finally gives him the vote he deserves. There’s absolutely no excuse for the Senate to wait any longer to confirm him.”

Republicans in the Senate still control enough seats to stop any nomination, but Democrats did gain two seats – including the one now occupied by Warren, who will sit on the Banking Committee. Meanwhile, it is unclear exactly how aggressive Crapo intends to be, whereas his predecessor as the panel’s ranking member, Alabama’s Richard Shelby, has been one of the bureau’s most vocal opponents.

Gil Schwartz, a partner at the law firm Schwartz & Ballen, said Obama’s reelection leaves Republicans with less political room to fight the nomination.

“It’s hard to deny the president a nomination under the circumstance,” he said. “I don’t think it’s business as usual for Republicans. I think they do recognize that sentiment has swung toward his side and the CFPB isn’t going anywhere.”

Others said while the bureau has accelerated the flurry of rulemakings affecting mortgages and other areas of the consumer financial markets, the CFPB has won credit from many in the industry for taking a more measured approached than was expected. Cordray is seen as wanting to listen to bankers’ concerns.

“The CFPB has been very deliberative,” said Ronald Glancz, a partner at Venable. “They’ve listened to a lot of voices. They’re very open and transparent in terms of the way they’ve gone about their rulemaking. I think Cordray will certainly get credit for that and they’ve taken the middle of the road in many cases.”

But the apparent position of GOP leaders not to budge from their earlier position poses significant obstacles, prompting some to question why exactly Cordray was renominated without any discussion about potential changes to the CFPB’s structure.

“I have a hard time thinking the way the process was done that somehow Republicans are going to be a lot more amenable then they were before,” said Mark Calabria, director of financial regulation studies at the Cato Institute and a former Senate Banking Committee staffer. “I think one of the reasons for [President Obama] to send this nomination up is purely politics – ‘Let’s have a fight to illustrate that I care about consumers and Republicans don’t.’”

He added that, after Republicans aired their initial concerns about the bureau’s single-director leadership, Cordray’s recess appointment only stirred the pot further.

“The process of his [first] nomination still irked a lot of people in the way it was done,” Calabria said. “Before, he could come in almost on a clean state, but any sort of nomination hearing is going to be about not only what CFPB has done but about the nature in which he was appointed.”

Meanwhile, there are still signs many in the industry have concerns.

Richard Hunt, the head of the Consumer Bankers Association, told reporters that, while he has found Cordray to be “very accessible [and] mostly fair”, the CBA still believes the bureau should be led by a commission instead of a single director.

“We are one rule from bringing the financial markets into chaos, which is much more likely to happen when you have a sole director versus a commission,” Hunt said. “This is time that the Senate takes a pause, reflects and tries to save itself from itself, and have a commission, not a sole director.”

Hunt said he expects the renomination to spur talks of a compromise involving the administration removing its opposition to a CFPB commission in exchange for a confirmation vote on Cordray. “You will start seeing some discussion of a possible confirmation in return for a restructuring,” he said.

But Taft said that was unlikely. “Both Obama and the Democrats have seemed to communicate that that is not on the table,” he said.

Fine said the environment has significantly changed since the first time Cordray was nominated.

“It’s a different time now than when he was first nominated. The CFPB has a track record. By any objective standard, the bureau has been more measured in its approach than a lot of people thought it would be,” he said.

“There are still some rules that ICBA still has concerns about. That said, it could have been a lot worse. From the standpoint that the bureau does at least seem to be listening, particularly to community bank concerns, that is very encouraging to us.”

Spring comes early for U.S. real estate

Many more people are shopping for homes than is typical for the winter months

January 18, 2013 12:00PM

By Kenneth R. Harney

Could we be looking at an early spring this year – not in meteorological terms but real estate? Could the chilly December to February months, which traditionally see fewer buyers out shopping for houses compared with the warmer months that follow, be more active than usual? And if so, what does this mean to you as a potential home seller or buyer?

There is growing evidence, anecdotal and statistical, that there are more shoppers on the prowl in many parts of the country than is customary for this time of year, more people requesting “preapproval” letters from mortgage companies, more people visiting websites offering homes for sale, and more people telling pollsters that they expect home prices to continue rising and that the worst of the housing downturn is long past. There is even data showing that during holiday-distracted December, there was a jump in visits to homes listed for sale.

Coldwell Banker, one of the largest brokerages in the country, says traffic to its listings website was up 38 percent during the past month, compared with year-earlier levels. ZipRealty, an online brokerage based in Emeryville, Calif., reports that its website has seen an unusual 33 percent increase in home shoppers in the first half of January compared with December.

Redfin, a brokerage with headquarters in Seattle, found that even during the week of Dec. 30, shoppers requesting home tours by agents jumped 26 percent over the four-week average, and 9 percent compared with the same week the year before.

Economists at the National Association of Realtors report that foot traffic at houses listed for sale in well over half of all markets around the country was higher this past December than the year before. Given the strong December reading, says Paul C. Bishop, vice president for research at the association, sales in the coming weeks should be “robust.”

Even in markets that typically hibernate until the snow melts, there are indications of an unusually early start to the 2013 season. Joe Petrowsky, president of Right Trac Financing Group, a mortgage company near Hartford, Conn., says he has received a much higher volume of requests for “preapproval” letters – which tell sellers that a purchaser is qualified for a mortgage loan – compared with what’s typical at this time of year.

“I’m seeing twice as many buyers this January as last January,” Petrowsky said in an interview. “People have finally figured out that prices are moving up, interest rates are really low, and they don’t want to miss out on the opportunity.”

In the Washington, D.C., area, Long & Foster Real Estate, the country’s largest independent broker, reports strong “signs that we are going to have an early spring” in terms of home sales. In an unusual occurrence for January, according to Steve Wydler, a Long & Foster agent in Northern Virginia, “multiple offer situations are becoming increasingly common, with prices being escalated above asking price.”

Gretchen Castorina, an agent with brokerage firm Allen Tate in Chapel Hill, N.C., says “spring started last month” in terms of new clients and multiple-bid competitions. Even in the dark final days of December, Castorina says she was busy. “I was showing houses on Dec. 31,” she said, and wrote a contract for purchasers just before Christmas.

Jo Ann Poole, an agent with Simi Valley Real Estate outside Los Angeles, says that for a variety of reasons “in the last 10 days people have figured it out,” and are making real estate moves that might have normally been pushed back into the spring months.

Polling by Fannie Mae, the government-backed mortgage investor, may shed some light on what’s motivating buyers. In a survey of 1,002 adults in December, Fannie found the highest share of consumers in the survey’s 2-1/2 year history who expect home prices to rise during the coming 12 months. Forty-three percent expect mortgage rates to jump and 49 percent believe the cost of renting will increase.

Roll all this together, says Doug Duncan, Fannie’s chief economist, and you can see why consumer sentiment “could incentivize those waiting on the sidelines . to buy a home sooner rather than later” – pushing spring behavior into mid-winter.

What’s missing from this equation? More owners listing their homes for sale. Inventories of available homes are down in most markets, mainly because many sellers are under the impression that it’s still a buyer’s market filled with lowballers who won’t pay them a fair price. In many parts of the country, that is last year’s news. In 2013, it’s simply no longer the case.

CFPB’s Mortgage Rule Better Than Expected, Banks Say

By Rachel Witkowski

JAN 10, 2013 6:23pm ET

WASHINGTON – Despite widespread fears by lenders that a 800-page rule released Thursday by the Consumer Financial Protection Bureau would end mortgage lending as we know it, the final regulation appeared to be significantly less onerous than many expected.

Among other things, the CFPB broadened the definition of what could be considered a “qualified mortgage” and granted a strong legal safe harbor to most such loans.

As a result, observers said the rule may allay concerns that it would tighten mortgage credit and impair the secondary market.

“The rule is a little less restrictive than what lenders feared, especially” with the safe harbor protection, said Leonard Bernstein, partner and chair of the Financial Services Regulatory Group at Reed Smith. “The safe harbor is very helpful for the prime market and should please lenders.”

Faced with lenders who demanded a full safe harbor protection and consumer groups who wanted a lesser “rebuttable presumption,” the CFPB mostly sided with banks. Under the rule, a loan has a safe harbor so long as it is prime and meets the other criteria of a qualified mortgage. A subprime loan with QM characteristics will receive only a “rebuttable presumption.”

The decision to split the issue largely pleased the banking industry.

“We commend the bureau for recognizing the need for a safe harbor to prevent a reduction in credit availability and unwarranted lawsuits that ultimately drive up the cost of loans for consumers,” Frank Keating, president and CEO of the American Bankers Association, said in a statement.

But it alarmed consumer groups, which continue to argue that the bureau is making a mistake on safe harbor. They still commended the overall rule, however.

“Even those with prime qualified mortgages can inherit discrimination,” Lisa Rice, vice president of the National Fair Housing Alliance, said during a panel discussion hosted by the CFPB in Baltimore on Thursday. “We have to be ever mindful and watchful with this system to make sure that a tiered system does not perpetuate a situation where we have . a dual market.”

During the public comment period at the CFPB event on Thursday, Rev. Gloria Swieringa, who serves on the Prince George’s County Commission for Individuals with Disabilities, expressed similar concerns.

“We need to see a safe harbor that adequately extends access to sufficient protection over the borrower,” said Swieringa, who called herself a “predatory lending survivor.” “Or down the road, we’re going to find the fox is back in the henhouse.”

The CFPB said in its materials released on the rule that consumers still have the right to litigate a mortgage, even if it has a safe harbor. CFPB representatives also noted that consumers can still challenge a lender on other consumer-related federal rules like fair lending.

“No standard is perfect, but this standard draws a clear line that will provide a real measure of protection to borrowers and increased certainty to the mortgage market,” CFPB Director Richard Cordray said during the public field hearing in Baltimore.

One of the likely areas of dispute is expected to center around CFPB’s proposed debt-to-income requirement to attain qualified mortgage status. Under the rule, a borrower must have no more than 43% debt-to-income.

But David Moskowitz, deputy general counsel at Wells Fargo, said during a panel discussion that the DTI ratio was consistent with how uniform underwriting standards should be “embraced.”

“The result is approval of a loan application only when a lender believes a consumer has the ability to repay,” he said. “It’s basic underwriting 101.”

But because of the added restrictions on higher-risk loans, some observers worry it will curtail credit in those areas, including more specialized loans like jumbo mortgages.

“We believe high dollar loans are likely to be the most impacted by the QM rule,” said Jaret Seiberg, managing director at Guggenheim Partners, in a note released Thursday. “We do not believe that lenders will be able to run these high dollar loans through the automated underwriting system.”

Although the QM rule appears relatively benign, some observers also said other pending regulations, including on mortgage servicing, will create other problems.

The safe harbor “does not relieve lenders from compliance with a plethora of other lending laws and fair lending,” Bernstein said. “I do not expect immediate loosening of credit as there are other factors like GSE reform that need to be addressed.”

Financial Services Committee Chairman Jeb Hensarling said in a statement that, given the continued fear of tighter credit, the committee would closely watch such rules from the CFPB.

“We have already started to see a consolidation in this market as participants, including banks and other mortgage loan originators, pull back from offering their products and services,” Hensarling said. As the committee “examines this and other mortgage rules, we will look to see how they will impact a community financial institution’s ability to compete and offer sustainable, affordable mortgages, or whether they will cause a further consolidation toward our nation’s perceived ‘too big to fail’ banks.”

Home equity values roar back in past year

By Kenneth R. Harney

01/04/2013

WASHINGTON – With all the depressing reports about the “fiscal cliff” and potential rollbacks in tax benefits for homeowners, you might have missed some of the positive trends under way for real estate.

Start with homeowners’ equity. It’s growing again significantly, following five years of declines and stagnation. This is a huge piece of good news that hasn’t received the attention it deserves. After hitting a low of $6.45 trillion in the final three months of 2011, Americans’ combined home equity jumped nearly $1.3 trillion during the next nine months to $7.71 trillion – a 20 percent gain – according to the “flow of funds” quarterly estimate released in December by the Federal Reserve.

A homeowner’s equity is the difference between the market value of his or her house and the amount of mortgage debt it is carrying. If your real estate would sell for $400,000 and you have a mortgage balance of $200,000, your equity is $200,000.

Equity is a key measure of wealth – often the largest single item on a family’s financial balance sheet – and the Federal Reserve tracks the estimated equity holdings of millions of owners to come up with its quarterly numbers. As recently as 2007, homeowners’ collective equity exceeded $10.2 trillion. Between that year and late 2011, owners lost nearly $4 trillion in real estate wealth.

So the $1.3 trillion turnaround during the first nine months of 2012 was a big deal. It reflected the first sustained rebound in home prices in a long time in many – though not all – local real estate markets. In a study released just before Christmas, researchers at Zillow.com found that of 177 major metropolitan markets, 135 had experienced net increases in cumulative home values during 2012.

Zillow broke it down into specific dollar amounts added to owners’ net worth, city by city: Owners in Los Angeles gained a cumulative $122.1 billion during the year; Washington, D.C., owners $40.4 billion; San Diego $31.2 billion, Seattle $20.1 billion, Boston just under $16 billion; Tampa, Fla., $8 billion; Sarasota, Fla., $5 billion; Tucson, Ariz., $3.8 billion; Oklahoma City $3.3 billion; and Columbus, Ohio, $3.5 billion.

These are big numbers and hard to grasp, but think of it this way: The odds are good that even if you own in a market that experienced severe price declines during the housing bust, the value of your house rose last year, at least modestly. Even if you have negative equity, it’s likely that, thanks to appreciation in your area and your continuing payment of principal on your mortgage, your equity position improved.

Some of the most impressive gains in values were in areas that suffered the deepest price plunges – and the most painful losses in owners’ equity – between 2007 and 2011. According to a study by Realtor.com, list prices of houses in Phoenix were 21.4 percent higher in November than they were 12 months earlier. In Riverside-San Bernardino, Calif., prices were up 13.3 percent. In Las Vegas 10.6 percent; Miami 10 percent.

What’s causing price surges like these in cities that cratered just a few years back? Part of it is a recognition by buyers, including investors, that prices hit bottom and won’t drop any further. The intrinsic economic values of houses and land simply exceeded the near giveaway, foreclosure-sale prices prevalent in the post-recession years. Now prices are correcting upward as buyers come back into the market.

But something else has been at work: Virtually all major real estate markets across the country have seen declines in the availability of homes for sale, in part because some sellers still fear they won’t get a good price, and because in some areas large numbers of potential sellers are still underwater on their mortgages. In Seattle, there were 43 percent fewer homes listed for sale toward the end of 2012 than the same time the year before. In San Francisco, the deficit was 41 percent, Los Angeles 37.5 percent, metropolitan Washington, D.C., around 28 percent.

Fewer listings mean more competition for what’s available for sale on the market, sometimes multiple offers, higher prices, and even the return of escalation clauses in contracts, where buyers’ offers contain automatic increases in multiple bid situations. That’s already well under way in parts of California, the Pacific Northwest and Washington, D.C., among other areas.

Ultimately higher prices should begin to convince more sellers to list their homes, pushing inventory higher and creating a healthier, more balanced real estate environment for 2013.