The Community Home Lenders of America (CHLA) today sent a comment letter to the Consumer Financial Protection Bureau (CFPB), the second CHLA letter in a week arguing that a CFPB rule designed for non-banks in general is redundant for IMBs and unnecessarily imposes new compliance burdens when applied to smaller MBs.
The CHLA letter expresses support for the rule’s objectives, noting that it fills a gap for most nonbanks. However, the letter calls for a safe harbor compliance provision for IMBs, saying that: “…we see no real consumer benefit of imposing a redundant requirement on independent mortgage banks (IMBs) through a complex 212-page rule to report agency and court orders IMBs already routinely provide to the Nationwide Multi-State Licensing System and Registry (NMLS).”
The proposed rule requires non-banks to designate a senior executive responsible for compliance with these agencies and court orders. The CHLA letter pointed out that the CFPB press release claimed this only applies to “larger non-banks” – but the $1 million in gross receipts exemption is meaningless for IMBs. CHLA called on the CFPB to exempt all by the largest IMBs from this requirement, pointing to Section 1024(b)(2) of Dodd-Frank, which requires the Bureau to tailor supervision of non-banks by asset size, volume, risks to consumers, and degree of state oversight
CHLA argued that without appropriate application of Section 1024(b)(2), the rule could have harmful effects on consumers by contributing to factors already driving mortgage market consolidation.
In the case of both requirements, the CHLA letter explained why they would create a disproportionate compliance burden on smaller IMBs:
- Smaller IMBs lack the volume economies of scale necessary to spread compliance costs over a larger revenue base, making smaller IMBs less able to offer competitive loan rates and fees.
- This impact is exacerbated by the current substantial reduction in mortgage loan volume.
- Analysis of this complicated rule will divert significant time from senior IMB staff, to determine whether contracts – many of which are provided by third parties – meet the rule’s requirements.
- Concerns about liability exposure will also result in smaller IMBs having to spend substantial resources – e.g. to hire third-party lawyers and consultants – to determine potential rule liability.