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
Just when you thought it was safe to swim in the mortgage industry regulatory waters, and it seemed that the CFPB’s teeth had been ground down by legal challenges and political winds, news emerges that the risk of aggressive oversight remains a concern for many.
In May the Consumer Financial Protection Bureau (CFPB) issued an investigative demand letter to Rocket Homes, the real estate brokerage affiliate of Quicken Loans (of “Rocket Mortgage” fame). Industry news outlets are reporting the focus of this investigation will be on potential RESPA violations seemingly connected to the cozy relationship between the realtor side and the mortgage lending side of the Quicken business model.
While there is no reason to believe that Quicken and its affiliates violated any laws or regulations, the fact that they have fallen under scrutiny shows that the CFPB is not averse to scrutinizing affiliate relationships nor are they concerned about taking on large lenders with high profiles. Recall that Quicken recently took steps to launch an IPO and become a publicly traded company. Whether that placed the company in the cross hairs of the regulatory giant or not is not known, however the CFPB has been historically shown to pay close attention to very large lenders and the business operations that made them a national success.
The key takeaway to this news is that the CFPB is alive and well and willing to send you an investigative demand letter. Regulatory and compliance issues especially related to affiliates and vendor management remain important and deserve your continued focus, no matter the size and footprint of your lending business. In addition, if you are allowing an affiliate to act as a vendor, you have an even greater obligation to establish an independent oversight and vendor management process to assure regulators that these relationships are as secure and proper from a consumer viewpoint as your relationship with non-affiliates.
For more information check out The American Banker and Housing Wire for full coverage.