It did not take long after the Silicon Valley Bank failure for politicians in Washington to rush to the next available microphone and lament the “loosening of bank regulations”. Instinctively the finger pointing began, and in many quarters ended up in the direction of the prior administration’s policy to generally roll back stringent business regulations and allow free market decisions to govern various industries. Chief among the complainants (no pun intended) was Sen Elizabeth Warren, who emerged out of the 2008 crisis as an architect and advocate for the Wall Street Reform Act and the creation of the vaunted Consumer Financial Protection Bureau ( CFPB), which she briefly directed. Just yesterday in DC’s The Hill publication, Sen Warren was reported as blaming the the collapse of Silicon Valley Bank on Republicans in Congress, which in 2018 helped pass a law to ease bank regulations put in place following the 2008 financial crisis. “No one should be mistaken about what unfolded over the past few days in the U.S. banking system: These recent bank failures are the direct result of leaders in Washington weakening the financial rules,” Warren is quoted as saying. According to The Hill piece, Warren, who voted against the 2018 bank deregulation bill, said that the crises would have been avoided if the banks were required to hold more liquid assets because the bill exempted banks with less than $250 billion in assets from rigorous Fed stress tests. Warren and other Democrats say the old rules could have caught the issues at SVB sooner. Given that politicians generally “never let a crisis go to waste,” many now suspect that the banking industry is about to be slammed with heightened regulatory scrutiny, tighter operational rules, more audits and exams, and larger and very public fines, penalties and consent orders. What does this mean for independent mortgage bankers (IMBs)? It means that they have to get back to the compliance mindset they were frightened into adopting between 2008 and 2018, and before the bottoming out of interest rates led everyone to believe that easy money was here to stay and that self-regulation meant hiring more loan officers. Keep those risk management officers and compliance directors close by folks, we are all in for a bumpy ride on the regulatory
According to Mortgage Professional America, the acting director of the Consumer Financial Protection Bureau, Mick Mulvaney, recently told industry leaders that the CFPB will no longer practice “regulation by enforcement.”
“The regulation by enforcement answer is really simple – we aren’t doing it anymore,” Mulvaney said. “It’s a fairness issue. If you’ve done something for so long and the government wants to change the rules, shouldn’t’ the government have to tell you they are changing the rules before they fine you?”
Mulvaney said further, “We are not out to make you look like a bad guy if you are not. We are out to enforce the law, not become the law.”
On its face some might see this as a reprieve from Dodd-Franks post-2008 regulatory expansions. However this is not what Director Mulvaney is saying. He is not indicating to lenders that existing regulations and laws will not be enforced. He is implying that his agency (and only his agency) will no longer aggressively seek to enforce ambiguous or unwritten regulations in an effort to “find a crime” where none exists on its face.
In the absence of specific Congressional action, Dodd-Frank is alive and well and unless the CFPB issues writings specifically retracting its published bulletins and directives lenders still must be certain to meet every single compliance rule that they have been struggling to address over the past several years.
In addition, as I have written about previously, where the federal government leaves a vacuum the states often rush in to fill up. Thus several states including New Jersey, Pennsylvania and others have recently announced the creation of state-level consumer financial protection agencies whose mission is no doubt designed to compensate for any actual or perceived erosion of the prior policies of the Cordray-led CFPB. Because mortgage lenders are creatures of state licensing, unlike federally chartered banks and depository institutions, it does not seem very much will be changing any time soon for these businesses.
CFPB loosening its regulatory grip? Don’t lay-off those compliance managers nor reallocate their budgets just yet.