The Consumer Financial Protection Bureau Wednesday disclosed key details about how its examiners will size up mortgage companies that aren’t banks but still offer home loans to consumers, noting it will be leaning on other regulators for help as it embarks on the enormous task of reviewing thousands of nonbank lenders.
The details are crucial given that the consumer watchdog agency, through a supervision program it launched last week, is preparing to bring many of the nation’s nonbank financial companies under federal supervision for the first time.
Thousands of nonbank financial firms are not chartered as banks but still offer mortgage, student and payday loans, and many have faced only light federal scrutiny. The sector has faced criticism from consumer advocates and other groups who say some home lending practices by the nonbank sector contributed to the recent financial crisis.
The consumer bureau noted Wednesday the sector is indeed “a significant part of the mortgage market” that included many of the largest subprime lenders during the housing bubble.
“The mortgage market cannot work well for consumers if the spotlight shines only on one part of it, while the rest is left in darkness,” said the consumer bureau’s director Richard Cordray. “Our supervision program will illuminate the entire marketplace by making nonbanks play by the same rules as the banks.”
The bureau’s new “Mortgage Origination Examination Procedures” guide released Wednesday makes clear the bureau’s examiners will be conducting broad reviews of nonbank mortgage lenders’ business practices and the agency will be coordinating with state regulators and other federal agencies.
Consumer bureau staffers will be examining the companies’ volume of business as well as the types of products and services the firms are offering. Also, the bureau will be evaluating lenders’ advertisements and marketing practices as well as closing practices, another indication that just about every part of a firms’ business model will be under review.
The goal will be to assess whether nonbank mortgage lenders and brokers are in compliance with financial laws.
But the bureau also made clear that, unlike other banking regulators, the watchdog has another focus: identifying risks to consumers.
The bureau, created by the 2010 Dodd-Frank financial overhaul law to root out fraudulent financial practices thought to have contributed to the recent financial crisis, had already been supervising some of the nation’s largest banks. But its powers to oversee nonbank lenders didn’t kick in until last week, when President Barack Obama recess-appointed Cordray as the bureau’s first director. Cordray has said the agency will move forward on programs and probes despite concerns about how the president bypassed the Senate to install him as the agency’s chief.
This article is by the Wall Street Journal, viewable here: “New Bureau Plans Close Look at Nonbank Mortgage Lenders.”