Winning the Future - Losing the Past

Jonathan Foxx is the President and Managing Director of Lenders Compliance Group.

“Winning the Future!” By now, most of us have heard President Obama's new slogan for his 2012 re-election campaign. 

But for the mortgage industry and consumers, it seems like something very vital is at stake: causes of the recent financial meltdown are creeping and clawing their way back. 

Perhaps we are not so much Winning the Future as Losing the Past.

Famous Last Words

Here are the very last words of the 1616 page Senate's amendments to the House's financial reform bill, which together formed the basis of the Dodd-Frank Act (Dodd-Frank):

Amend the title so as to read: An Act to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail", to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes. (My Emphasis) 

The nomenclature "too big to fail," otherwise known by the acronym TBTF, was placed into the legislative language right then and there!

But that phrase "too big too fail" itself never actually made it into the 2319 page Dodd-Frank Act.

Did it just disappear forever or merely reappear with a make-over?

What’s In A Name

Dodd-Frank saw to it that the pesky and politically unpopular term "too big to fail" disappeared, but the concept was craftily replaced with a shiny new term, known as a "systemically important financial institution," also prestigiously having an acronym of its very own: "SIFI." (Pronounced in the same way as you would pronounce SciFi!)

Is the SIFI a different kind of indomitable beast than the TBTF monstrosity?

Let's take a closer look, by reading some Dodd-Frank descriptions of this SIFI creature:

• Entities that are systemically important or can significantly impact the financial system of the United States.

• The terms 'systemically important' and 'systemic importance' mean a situation where the failure of or a disruption to the functioning of a financial market utility or the conduct of a payment, clearing, or settlement activity could create, or increase, the risk of significant liquidity or credit problems spreading among financial institutions or markets and thereby threaten the stability of the financial system of the United States.

And here is one of several factors that may be taken into consideration, when deciding to protect us from the flailing SIFI:

• The effect that the failure of or a disruption to the financial market utility or payment, clearing, or settlement activity would have on critical markets, financial institutions, or the broader financial system.

Now you might argue that TBTF is a somewhat colloquial expression, a political and journalistic tool, but its successor, SIFI, is now enshrined into law along with certain actionable remediation. Conceptually, however, I see very little light between the meaning of the two terms.

So did Dodd-Frank conquer the "too big to fail" beast, wrestling the TBTF to the ground, casting it into chains, pulling off its griftopic mask, and finding underneath the "systemically important financial institution," that rapaciously attenuated SIFI?

Are We Safe From The SIFI?      

Let us presume that Dodd-Frank actually provides viable regulatory remedies for keeping this SIFI chained up. As you may know, I have written extensively about the breathtaking lack of formidable brakes in Dodd-Frank to avoid the SIFI debacle. Indeed, certain markets are still exposed to systemic failure, as that term is defined by Dodd-Frank. In some cases, certain markets are inadequately addressed by or they are not even regulated through Dodd-Frank.

In any event, let us just suppose that somehow Dodd-Frank actually has all the regulatory remedies it needs to keep the SIFI under control. What may happen in another meltdown?

Alternative Mortgage Transaction Parity Act (AMTPA)

On July 22, 2011, the Bureau of Consumer Financial Protection (CFPB) published in the Federal Register for public comment an Interim Final Rule implementing amendments to the Alternative Mortgage Transaction Parity Act (AMTPA) made by the  Dodd-Frank Act (Dodd-Frank).

AMTPA authorizes state-licensed or state-chartered housing creditors (state housing creditors) to make alternative mortgage transactions in compliance with federal rather than state law, in order to establish parity and competitive equality between state and federal  lenders.

Effective July 21, 2011, Dodd-Frank amended AMTPA to transfer rule-writing authority to the CFPB and to narrow the scope of federal preemption.

After July 21, 2011 Dodd-Frank provides that state housing creditors may only make alternative mortgage transactions under AMTPA if they comply with rules issued by the CFPB, even though Dodd-Frank does not vest the CFPB with authority to issue such rules before that date.

Accordingly, CFPB interim rules are needed immediately in order to avoid a suspension in the operation of AMTPA, which would prevent state housing creditors from making variable rate loans and other alternative mortgage transactions in states where such loans are otherwise prohibited by state law. 

OVERVIEW 

Accordingly, CFPB interim rules are needed immediately in order to avoid a suspension in the operation of AMTPA, which would prevent state housing creditors from making variable rate loans and other alternative mortgage transactions in states where such loans are otherwise prohibited by state law.

Essentially, the CFPB apparently does not believe that Congress intended its amendments to AMTPA to create a regulatory gap that would interrupt access to credit.

Indeed, in the Federal Register the CFPB states that there is good cause to issue this interim final rule without notice and comment and effective immediately in order to avoid the risk of disrupting mortgage markets, placing state housing creditors at an "inappropriate competitive disadvantage," and reducing consumers' access to credit. 

In particular, the CFPB is concerned that failure to issue an interim final rule addressing the modification of existing AMTPA loans could create uncertainty and discourage such modifications.

ADVANCE NOTICE 

In advance of issuing this Interim Final Rule, the CFPB issued a Public Bulletin, on June 27, 2011, alerting state chartered and licensed lenders and other interested parties that:

(1) the Dodd-Frank amendments to AMTPA are to take effect on July 21, 2011; and,

(2) the amendments affect what laws apply to mortgage loans issued by state chartered or licensed lenders after that date, by narrowing the statutory definition of "alternative mortgage transaction" and the scope of preemption under AMTPA.

LIBRARY

Alternative Mortgage Transaction Parity
(Regulation D)
Interim Final Rule with request for public comment.
Federal Register: 76/141
July 22, 2011

Amendments to the
Alternative Mortgage Transaction Parity Act
CFPB Bulletin 11-1
June 27, 2011

Ability-to-Repay: Regulating or Underwriting?

EXCERPT # 1 

It seems to me that the imposition of an ability-to-repay requirement as a regulatory mandate is an admission that market forces cannot discipline lenders or incentivize lenders to act in their own self-interest.

This is an obvious shift in liabilities, because this mandate shifts the burden of compliance to the lenders in order to assure that their contractually bound borrowers can pay back their loans. Parties to any contract can become adversaries!

In other words, the relationship between the creditor and the borrower is innately affected and extensively undermined by this Rule, inasmuch as it imposes a new kind of theory for a regulatory framework and, in my estimation, infantilizes lenders by making them comply with a regulator's ad hoc way of rationing the extension of credit. 

ABILITY-TO-REPAY: REGULATING OR UNDERWRITING? (Part II)

EXCERPT # 2

If the rationing of credit is meted out through this regulatory construct, it can be legitimately asserted as well that lenders are not arms-length, contractual counterparties; that is, lenders now will have a duty to assess a prospective borrower's ability to repay, irrespective of collateral value and securitization.

This change in the dynamics between and the inherent, due diligence tension among the parties to a residential mortgage transaction raise serious issues about the systemic consequences soon to be engendered. 

ABILITY-TO-REPAY: REGULATING OR UNDERWRITING? (Part II)

Opening a Dialogue: Elizabeth Warren and the Mortgage Industry

 

Jonathan Foxx is the President and Managing Director of Lenders Compliance Group. 

According to news reports, Elizabeth Warren will not be chosen as the Director of the Consumer Financial Protection Bureau (CFPB).

Since September 2010, Professor Warren worked diligently and reliably to "stand up" the CFPB in accordance with the specified requirements of the Dodd-Frank Act.

Whether or not Professor Warren remains with the CFPB in some capacity or moves on to other venues, the views and vision that she brought to the creation of the CFPB will likely remain the standard by which the CFPB will be judged to have served its mission.

With this in mind, I would like to share my just published interview with Professor Warren, entitled:

Opening a Dialogue: Elizabeth Warren and the Mortgage Industry

The article is published in the July 2011 edition of the National Mortgage Professional Magazine, which is available to you, compliments of the magazine. (A one year free subscription is offered.)

This interview, which includes questions posed by leading mortgage industry organizations, offers a deeper insight into how the CFPB's mission may affect state law, the mortgage industry, mortgage brokers, and even educational opportunities for mortgage loan originators.

The article also contains a section, entitled In Her Own Words, which provides additional insight into Professor Warren's views about consumer financial protection.

OPENING A DIALOGUE:
ELIZABETH WARREN
AND THE MORTGAGE INDUSTRY

 
As many in Congress seem bent on immobilizing the CFPB, it will be important to determine the extent to which the new agency lives up to the standards and mission which Professor Warren hoped it would achieve.

I want to take this opportunity to thank Professor Warren, her friendly and cooperative staff, and leaders of the many industry organizations that took part in this project. It was a pleasure working with you all.

FRB: Mortgage Rulemaking Chart 2008 - 2011

On Wednesday, we notified you about the testimony given by witnesses in the hearing held by the Insurance, Housing and Community Opportunity Subcommittee (Committee of Financial Services) held a hearing, entitled "Mortgage Origination: the Impact of Recent Changes on Homeowners And Businesses."

The overall purpose of the hearing was to evaluate recent changes to mortgage origination laws, with particular focus on the impact the new laws and regulations have on consumers and credit availability in the mortgage finance markets.

During the hearing, Sandra Braunstein, the FRB's Director of Division of Consumer and Community Affairs, provided written testimony containing a table entitled "Summary of Federal Reserve Board Mortgage Rulemakings - 2008 through 2011."

I have removed the table from the written testimony and featured it separately in our Library. 

MORTGAGE RULEMAKINGS - 2008 THROUGH 2011

FINAL RULES

• Home Ownership and Equity Protection Act (HOEPA): Final Rule
• Mortgage Disclosure Improvement Act, Part I: Final Rule
• Mortgage Disclosure Improvement Act, Part II: Interim Final Rule
• Helping Families Save Their Homes Act - Mortgage Transfer Disclosure: Final Rule
• Loan Originator Compensation: Final Rule
• Dodd-Frank Act - Appraisal Independence: Interim Final Rule
• Dodd-Frank Act - Escrow Account: Final Rule

PROPOSED RULES

• Regulatory Review of Disclosure Rules for Closed-end Mortgages (Phase I)
• Regulatory Review of Disclosure Rules for Home Equity Lines of Credit (HELOCs) (Phase I)
• Regulatory Review of Mortgage Disclosure Rules (Phase II)
• Dodd-Frank Act - Escrow Account Disclosures
• Dodd-Frank Act - Ability to Repay/Qualified Mortgages

LIBRARY

Summary of Federal Reserve Board Mortgage Rulemakings

2008 through 2011 

Statement of Sandra F. Braunstein, Director
Division of Consumer and Community Affairs, Federal Reserve System
Insurance, Housing, and Community Opportunity Subcommittee
(Committee on Financial Services)
July 13, 2011

CFPB: The Headless Horseman

COMMENTARY: by JONATHAN FOXX

Jonathan Foxx, former Chief Compliance Officer of two publicly traded financial institutions, is President and Managing Director of Lenders Compliance Group, the nation’s first full-service, mortgage risk management firm in the country.

At this writing, we are almost a week away from the Designated Transfer Date - the date on which the Consumer Financial Protection Bureau (CFPB) receives its enumerated authorities - and nobody has been chosen, appointed or nominated to head the new agency. Several suggestions for the principal position abound, primarily Elizabeth Warren.

How can such a monumental lack of political discipline, by Democrats and Republicans alike, be accounted for? 

CFPB: Laws

The CFPB, created by the Dodd-Frank Act, on July 21st it will receive authority over:

-Alternative Mortgage Transaction Parity Act (AMTPA)
-Community Reinvestment Act (CRA)
-Consumer Leasing Act (CLA)
-Electronic Funds Transfer Act (except the Durbin interchange amendment) (EFTA)
-Equal Credit Opportunity Act (ECOA)
-Fair Credit Billing Act (FCBA)
-Fair Credit Reporting Act (except sections 615(e), 624 and 628) (FCRA)
-Fair Debt Collection Practices Act (FDCPA)
-Federal Deposit Insurance Act, subsections 43(c) through 43(f)(12) (FDIA)
-Gramm-Leach-Bliley Act, sections 502 through 509 (GLBA)
-Home Mortgage Disclosure Act (HMDA)
-Home Ownership and Equity Protection Act (HOEPA)
-Real Estate Settlement Procedures Act (RESPA)
-S.A.F.E. Mortgage Licensing Act (S.A.F.E. Act)
-Truth in Lending Act (TILA)
-Truth in Savings Act (TISA)
-Omnibus Appropriations Act- Section 626 (OAA)
-Interstate Land Sales Full Disclosure Act (ILSFDA)

In just a few days, the CFPB is going to have authority over the above-stated enumerated laws through rulemaking, orders, guidance, interpretations, policy statements, examinations, and enforcement actions.

The CFPB will be assigned primary authority to enforce the aforementioned laws, but other federal regulators, including the Department of Housing and Urban Development (HUD), the banking agencies, and the Federal Trade Commission, will retain overlapping, secondary enforcement authority over certain requirements. State Attorneys General will be empowered to enforce federal laws under the CFPB (subject to any existing limitations in the laws to be transferred to the CFPB's authority). State consumer financial protection laws would not be preempted, except to the extent that they are inconsistent with federal law (although such state laws could be stricter than the federal laws, in which case they would not be preempted by federal law).

CFPB: Products

The CFPB will have oversight over many financial products and services, including, but not limited to, credit extension; credit counseling; loan servicing; Credit Reporting Agencies, their agents and affiliates; real property leases; real estate settlement services; real estate appraisals; depository accounts; financial advisory services; exchange of funds and transmittal of funds; consumer custodial fund services; so-call "stored value cards;" check cashing; debt management, settlement, and collection services; payment processing services; and, a catch-all "other products and services" (as the CFPB so defines).

CFPB: New Offices

There will be various units and offices: a research unit to monitor the consumer financial products and services market, and a unit to collect and track complaints; three new offices to be established within one year of the Designated Transfer Date, an Office of Fair Lending and Equal Opportunity, an Office of Financial Education, an Office of Service Members Affairs; and, an Office of Financial Protection for Older Americans, which must be established within 180 days after the Designated Transfer Date. Furthermore, there will be a Private Education Loan Ombudsman to process complaints from borrowers of private education loans.

CFPB: Staff

In addition to the CFPB's responsibility to build its own staff and administrative operations, it will collaborate with the federal banking agencies and HUD to choose employees to be transferred from their agencies to the CFPB. All such employee transfers are to be fully effectuated not later than 90 days after the Designated Transfer Date.

CFPB: Director

The Director must establish all units and offices within specific time frames, include various coordinating and administrative mandates, provide for reporting requirements to Congress, and must see to it that the various components of the CFPB function through interacting participation within and across all CFPB units and, where applicable, certain federal and state agencies and regulators. 

In addition to the foregoing, the Director must also establish the Consumer Advisory Board and appoint its members. By July 21st, as well as its receiving other authorities pursuant to Dodd-Frank, the CFPB must, among other things, conduct research relating to consumer financial products and services, develop its nationwide consumer complaint response center, plan and take steps to implement the risk-based supervision of non-depository entities, and prepare for the opening of outreach offices.

"You say yes, I say no / You say stop and I say go, go, go"  (Beatles) 

     

Whatever your political persuasion these days, it is irrefutable that this new agency is soon coming into its powers! 

Some people believe that the Director should be industry friendly; others believe the Director should be consumer friendly. Does it occur to any of them that these predilections are not mutually exclusive?

Some legislators want to defund the CPFB or "defang" it (as one Congressperson has opined); others want it to have full funding and all the enforcement powers granted by Dodd-Frank. 

But defunding an agency that is set to receive all the enumerated laws is entirely counterproductive, inasmuch the industry will depend on it for oversight of these laws. And the CFPB, as required by Dodd-Frank, that is deprived of enforcement powers is virtually no agency at all: this is to "defang" it without regard for the consequences. 

Every compliance officer knows that compliance means nothing without enforcement!

"I say high, you say low / You say why, and I say I don't know" (Beatles)

We all know that the President cannot make a recess appointment if Congress is not in recess, notwithstanding the "pro forma sessions" that may be conducted in order to keep the Congress "in session." Essentially, the tactic is for opposition legislators - primarily Republicans - to prevent an appointment of anybody at all to the CFPB unless the CFFB is changed. 

As to confirming an appointment, at this time the President has put forth almost 300 civilian appointments this year, but fewer than 100 of them have been confirmed by the Senate - and these are instances where there is no opposition! Indeed, there are 15 judge nominees who have already been unanimously approved by the Senate Judiciary Committee, but their nominations have not even been sent to the floor of the Senate.

Importantly - and, at this late date, inexplicably - President Obama has not even announced his choice for the Director! How can consumers or industry expect congressional action when the President himself won't choose?

At this time, Elizabeth Warren is standing up the CFPB. She is the very person who devised the idea of a consumer financial protection agency and then advocated in the halls of Congress, in speeches, lectures, and interviews throughout the United States, for its creation. Since September 17, 2010, she has been building the CFPB in accordance with the requirements of Dodd-Frank. 

While proponents and opponents lambast each other, and a Director is not appointed, the stakes for the mortgage industry continue to grow ever higher and perilous. The many enumerated laws being fully empowered into the CFPB on July 21st affirmatively require substantive, continuous, and very careful oversight. 

The individual who manages that agency matters!

Headless Horseman      

• "The dominant spirit, however, that haunts this enchanted region, and seems to be commander-in-chief of all the powers of the air, is the apparition of a figure on horseback, without a head. It is said by some to be the ghost of a Hessian trooper, whose head had been carried away by a cannon-ball, in some nameless battle during the Revolutionary War, and who is ever and anon seen by the country folk hurrying along in the gloom of night, as if on the wings of the wind."

    - Washington Irving, "The Legend of Sleepy Hollow"

The principal character in "The Legend of Sleep Hollow" is Ichabod Crane, a school teacher. Sleepy Hollow is believed to have been located in the area of Tarrytown, NY. Ichabod is killed quite dramatically when the headless horseman, a ghost - and it is believed that ghosts can't cross water! - throws his severed head across a bridge, over the water, and hits poor Ichabad off his horse. The next morning, Ichabod's hat is found nearby, and beside it is a shattered pumpkin. Ichabod was never seen in Sleepy Hollow ever again. In Irving's story, one is led to conclude that the headless horseman was really no ghost at all, but Abraham van Brunt (aka "Brom Bones"), Ichabod's rival for the hand in marriage of Katrina van Tassel, the beautiful daughter of a rich farmer.

Any agency without a head is crippled, but, given the mandates arrogated to the CFPB, not to have a Director immediately is especially debilitating to consumers and mortgage industry participants alike.

Instead of being rivals, like Ichabod Crane and Brom Bones, it is in the interest of both consumers and industry to lobby for a strong CFPB, under the direction of a wise, knowledgeable, and experienced leader.

This is not a job for a career bureaucrat. It requires a Director with considerable managerial, legal, political, and financial knowledge, all of which ideally would be expressed through a balanced temperament, a focused and incisive mind, a fierce consumer advocacy, and sophisticated communication skills.

It seems that Sleepy Hollow has relocated to the Congress of the United States.

What do you think? 

I would welcome your comments.

Please contact me if you want to contribute an article.

HUD: Updates RESPA

On July 11, 2011, the Department of Housing and Urban Development (HUD) issued updates to the Real Estate Settlement Procedures Act (RESPA).

This is a final rule (Rule) which makes technical corrections and certain clarifying amendments to HUD's RESPA regulations promulgated by a final rule published on November 17, 2008.

The majority of the regulations promulgated by the November 17, 2008, and became applicable on January 1, 2010.

The HUD will transfer its authority over this Rule to the CFPB on July 21, 2011. 

Effective Date: August 10, 2011. 

 SALIENT AMENDMENTS

Good Faith Estimate (GFE) and Intent to Proceed

The applicant borrower must express an intent to continue with the application process.

The Rule amends § 3500.7(a)(4) and (b)(4) to provide that the applicant borrower must indicate an intention to proceed with the loan covered by the GFE received by the applicant borrower from the lender or mortgage broker before the lender or mortgage broker may charge additional fees.

Good Faith Estimate (GFE)

Tolerances

Currently the applicable provision states that a loan originator is bound "within the tolerances provided in paragraph (e) of this section, to the settlement charges and terms listed on the GFE provided to the borrower, unless a [revised] GFE is provided prior to settlement consistent with this paragraph (f)."

However, the introductory paragraph inadvertently omits that the GFE does not remain binding indefinitely but expires 10 business days after the GFE is provided to the borrower if the borrower does not express an intent to continue with an application provided by the loan originator that provided the GFE, or expires after such longer period as may be specified by the loan originator pursuant to § 3500.7(c).

Although the expiration period of the GFE is clearly stated in paragraph (f)(4) of § 3500.7(f), HUD finds that clarity is enhanced by also adding this language to the introductory paragraph of § 3500.7(f).

Changed Circumstances

Currently the applicable provision addresses changed circumstances affecting settlement costs, provides that the revised GFE may increase charges for services listed on the GFE but only to the extent that the changed circumstances actually resulted in higher charges.

However, the currently the applicable provision, which addresses borrower-requested changes, inadvertently omits that the revised GFE may increase charges listed on the GFE only to the extent that changed circumstances affecting the loan, or the borrower's requested change, actually increased those charges. 

This rule therefore adds language that clarifies this limitation.

Locked Interest Rate

HUD clarifies that whenever the borrower's interest rate is locked, a revised GFE must be provided to the borrower showing the revised interest rate-dependent changes and terms within 3 business days.

Construction Loans

In revising § 3500.7(f)(6) of RESPA, HUD is adding the word "construction" to the phrase "new home purchases" so that it reads "new construction home purchases."

HUD believes that the content of this paragraph is clear that new home purchases refers to purchases of newly constructed homes, not simply any home that is new to a borrower. This interpretation is supported by the preamble to the November 17, 2008, final rule in which this regulatory provision was discussed.

While HUD believes the meaning of paragraph (f)(6) is clear, to remove any possibility of ambiguity the word "construction" is inserted between the words "new" and "home purchases."

HUD-1 or HUD-1A Settlement Statements

Appendix: HUD-1 Instructions for Page 3 

The instructions for the HUD-1, found at 73 FR 68243 of the November 2008 final rule, provide that the HUD-1 form is to be used as a statement of the actual charges and adjustments. If the borrower, or a person acting on behalf of the borrower, does not purchase a settlement service that was listed on the GFE (e.g., owner's title insurance), there should be no amount entered for that service in the corresponding line on Page 2 of the HUD-1, and the estimate of the charge from the GFE should not appear on the comparison chart on Page 3 of the HUD-1.

HUD has determined that the current instructions are not sufficiently clear on this point. Allowing loan originators to include on Page 3 of the HUD-1 charges from the GFE for settlement services that were not purchased could both induce loan originators to discourage consumers from purchasing settlement services (e.g., owner's title insurance) in order to gain padding in the 10 percent tolerance categories, and encourage loan originators to pad the 10 percent tolerance categories on the GFE with estimates of services that the consumer will not need in the transaction. HUD has previously addressed and clarified this issue in informal guidance.

Therefore, HUD is revising the first paragraph of the instructions for Page 3 of the HUD-1 to clarify that the amounts to be inserted in the comparison chart are those for the services that were purchased or provided as part of the transaction, and that no amount should be included on Page 2 of the HUD-1 for any service that was listed on the GFE, but which was not obtained in connection with the transaction.

LIBRARY

HUD: Real Estate Settlement Procedures Act (RESPA)
Technical Corrections and Clarifying Amendments
Federal Register - Vol. 76, No. 132
Monday, July 11, 2011

CFPB: Defining "Larger Participant"

On June 29, 2011, the Consumer Financial Protection Bureau (CFPB) issued a request for comments regarding the requirement to implement a program to supervise certain nondepository covered persons for compliance with Federal consumer financial laws.

The scope of the CFPB's supervision coverage varies for different product markets. Section 1024 of the the Dodd-Frank Act (Dodd-Frank) provides that the CFPB may supervise covered persons in the residential mortgage, private education lending, and payday lending markets. For other markets for consumer financial products or services, the supervision program generally will apply only to a ''larger participant'' of these markets.

Therefore, the CFPB is required to issue an initial ''larger participant'' rule not later than July 21, 2012, one year after the designated transfer date.

Essentially, under Dodd-Frank, the CFPB's non-bank supervision program will be able to look at companies of all sizes in the mortgage, payday lending, and private student lending markets. For all other markets - such as consumer installment loans, money transmitting, and debt collection - the CFPB generally can supervise non-banks only if they are larger participants in these markets.

Hence, in order to supervise them, the CFPB must write a rule within the next year to define who is a "larger participant."

The following outline is a brief synopsis of the questions requiring comments.

COMMENTS DUE DATE: AUGUST 15, 2011.

THREE ESSENTIAL QUESTIONS

• Should a larger participant be defined based on the relative size of the participants within a market (i.e., whether the number of annual transactions of the market participants is above the mean or median) or, alternatively, should a larger participant be defined based on an absolute threshold, such as doing business in a specified number of states?
• Should more than one criterion be used to determine the size of a market participant, such as the number of annual transactions and/or the number of states in which the participant conducts business?
• Should the same criteria and thresholds be used to define a larger participant for every market, or should different criteria and thresholds be tailored for each market based on the market's characteristics?

SIZE = AGGREGATE = LARGER PARTICIPANT

In considering how to define which nondepository covered persons are larger participants in a particular market, a number of approaches are be suggested.

Determining the appropriate criteria and thresholds are being approached in light of the applicable statutory language, which refers to a ''larger participant'' of a market. (This statutory language is not limited only to the ''largest'' participants in each market, but at the same time does not encompass smaller market participants.)

Dodd-Frank provides that, for purposes of computing the activity levels of a market participant, the activities of the participant ''shall be aggregated'' with the activities of nondepositor ''affiliated companies.''

Examples of potential criteria that could be used to define larger participants of a market include one or a combination of the following: annual number of transactions in the market; annual value of transactions (i.e., total loan volume); annual receipts or revenue; geographic coverage (i.e., number of states where engaged in business); asset size; and outstanding loan balances.

CRITERIA

• The number of states in which a market participant conducts business. Public data, including from sources such as the Securities and Exchange Commission's online EDGAR database, and state and federal licensing and registration records.
• Nonpublic state or federal supervisory or other data.
• Commercial data, such as proprietary industry market analyses.
• Data obtained directly from  market participants.

REGISTRATION?

The CFPB is considering the establishment of a registration program for certain covered persons through a future rulemaking that will serve to supplement existing data used to measure market participants.

Questions:

• For each market, what reliable data sources are available and would be suitable for the CFPB to use in its larger participant determinations?
• What data should the CFPB collect through a registration process to use in its larger participant determinations?

MEASUREMENT DATES AND SUPERVISION TIMEFRAMES

Questions:

• What factors should the CFPB consider in connection with the treatment of events such as the merger market participants during an assessment time period?
• Are there alternative approaches for establishing an assessment time period the CFPB should consider?
• For what length of time should a market participant be subject to supervision once it meets the applicable threshold?
• How should subsequent changes in the participant's size be treated?

MARKETS

The CFPB seeks comments regarding the following markets: Debt Collection; Consumer Reporting; Consumer Credit and Related Activities; Money Transmitting, Check Cashing, and Related Activities; Prepaid Cards; and, Debt Relief Services.

Questions:

• What consumer financial product or service markets should be included in the initial rule?
• How should the financial product or service markets included in the initial rule be defined?
• In addition to considerations relating to how to define the relevant product markets, should all markets be national in scope, or should the CFPB consider regional or other geographic markets in certain instances?
• If regional or other geographic markets should be considered, describe with specificity how they could be defined?
• What specific criteria should be measured, and threshold levels set, to define a larger participant in the markets identified above, and in any other markets that should be included in an initial rule?
• What data should be used to assess whether the thresholds have been met?

LIBRARY

CFPB: Defining Larger Participants in Certain
Consumer Financial Products and Services Markets 

Notice and Request for Comment. (12 CFR Chapter X)
Federal Register, Vol. 76, No. 125
June 29, 2011

CFPB: Heat Maps and Mortgage Disclosure

The Consumer Financial Protection Bureau (CFPB) has taken an innovative approach toward designing the forthcoming, combined Good Faith Estimate and Truth in Lending Disclosure (Mortgage Disclosure): it is using heat maps to determine viewer orientation to information stated on the Mortgage Disclosure. This is part of the CFPB's Know Before You Owe project.

The CFPB announced this unique evaluative tool recently in its issuance, entitled Mortgage Disclosure Is Heating Up.

A heat map is a graphical representation of data, where a two-dimensional color table represents certain variable values. It has many uses in numerous fields.

Heat maps can be extrapolated from statistical values, providing feedback based on specific data points.

In our previous newsletter, we discussed the two sample Mortgage Disclosures that were under consideration by the CFPB. These were the subjects of heat map evaluations.

The forms were labeled "Ficus Bank" and "Pecan Bank."

Copies of those forms are available in our Library.

RESPONDENTS

According to the CFPB, more than 14,000 people submitted a choice between the two forms, and 13,000 individual comments were received.

The heat maps, essentially, were generated from the statistical values created by visitors clicking areas of the form.

The CFPB's evaluation process seems to include the heat maps - which provide the ways areas of the forms were experienced - along with the choice of disclosures selected by the visitors, and, importantly, the review of comments that the visitors provided.

HEAT MAP - MORTGAGE DISCLOSURE

The CFPB is using heat maps to display areas of the Mortgage Disclosure most frequently clicked by website visitors who were viewing the forms.

Click Heat Map

LEARNING CURVE

Thus far, the CFPB has determined the following from the use of the heat maps:

Respondents:

• Were interested in the bottom line.

CFPB: "The full loan amount at the top of the page, the projected payments section at the bottom of the page, and the estimated closing payment on the second page all received a lot of clicks."  

• Had a great deal to say about the "Key Loan Terms" and "Cautions" sections.

• Commented on the first page of the draft form much more than on the second.

CFPB: "This is a pretty common occurrence, and on its own, it serves as helpful advice for our designers about where to put certain important information. But the information on the second page (like closing costs, for example) is also an essential part of mortgage disclosure. That's why the next round of testing will focus on the second page."

INITIAL OBSERVATIONS

CFPB observed that the heat maps showed:

• How the two different formats drew attention to different parts of the form.
• Differences between what consumers and lenders commented on. ("For example, industry reviewers were very interested in applicant or lender information at the top of the form. Consumer reviewers paid less attention to that.")
• Differences between what positive and negative reviewers noticed on a form.
  
  

LIBRARY

Consumer Financial Protection Bureau  

Library Section

Announcing the CFPB Forum – A New Website

This new website is designed to provide useful news and expressed views about the Consumer Financial Protection Bureau (CFPB).

If you are interested in the CFPB, this forum is for you!

The CFPB Forum website has interactive, discussion facilities and is shared through LinkedIn, Facebook, and Twitter.

Articles and interactive discussions will be regularly posted on CFPB Forum, as well as LinkedIn, Facebook, and Twitter in order to keep viewers and participants informed.

I welcome proposals for news and articles to be posted on the CFPB Forum. Please contact me to make arrangements. 

My firm, Lenders Compliance Group, is making this commitment to administer, monitor, maintain, and continually update the CFPB Forum.

Regards,
Jonathan Foxx
Administrator

What is the CFPB Forum?

CFPB Forum is a "discussion venue," providing a web space for viewers to better their understanding and become more informed about the CFPB. It is equipped with an interactive discussion forum and several useful, online features. My firm's Library section, devoted to the CFPB, is provided.

CFPB Forum is not associated or affiliated with the Consumer Financial Protection Bureau, an independent bureau within the Federal Reserve System.  

How can you contribute?

• Join the Discussion Forum

• Post Articles (Special Feature)

• Post News (Special Feature)

• Suggest Website Enhancements

• Share It

• Subscribe
  
• Follow by Email
  

 In due course, we will be adding new functionalities and facilities.

Welcome!