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Trump Presidency Means Big Changes for CFPB’s Reign in Mortgage Industry

While it is unclear just what policies Trump plans to tackle related to housing and mortgage finance, experts agree that significant changes likely will come to regulations long contested by Republican lawmakers, particularly when it comes to rules on banking and financial services administered by the Consumer Financial Protection Bureau (CFPB).

It appears likely that the new Administration will not oppose GOP initiatives to correct several deficiencies that have been raised regarding the Dodd-Frank Act, said Joseph Lynyak III, partner Dorsey & Whitney LLP, an international law firm and expert on the dealings of the CFPB.

“Particularly since there will be a unified governing structure for both Congress and the Executive Branch, the GOP may be emboldened to expand on past proposals for ‘regulatory reform,’” Lynyak said.

This could mean taking another look at the CHOICE Act, the Republican-backed legislation introduced this summer by House Financial Services Committee Chairman Jeb Hensarling (R-TX) that seeks to replace Dodd-Frank and fundamentally reform the CFPB. On a key area of reform.

“As part of the appropriations process, needed reforms to the operation of the CFPB might be adopted, including the creation of a commission structure, placing funding for the CFPB under the control of Congress, and amending the penalty provisions currently authorized for use by the CFPB,” Lynyak said.

Reforms that subject the CFPB to the Congressional appropriations process, or change the agency from its single-director structure to a multi-member commission-based framework, are more realistic than a complete unwinding of complex regulation such as Dodd-Frank.

“The likelihood of incremental change is greater than sweeping change, and that may be what ends up happening,” said Benjamin Olson, partner at BuckleySander LLP in Washington, D.C.

Olson formerly served as Deputy Assistant Director for the CFPB’s Office of Regulations, the division within the Bureau responsible for writing seminal mortgage industry regulations such as the TILA-RESPA Integrated Disclosure (“TRID”) and Qualified Mortgage (“QM”) rules.

Currently, Olson’s practice includes advising clients on compliance with CFPB mortgage and credit card regulations, particularly the rules implementing the Dodd-Frank Act, including the Truth in Lending Act (TILA) and the Real Estate Settlement Procedures Act (RESPA).

“This is going to be a tough call for the new Congress and new President simply because the mortgage industry has invested millions, if not billions, of dollars into building systems and training personnel to comply with these new regulations,” Olson told RMD. “Simply sweeping them away would be seen as beneficial in some ways, but could also leave a vacuum that could create uncertainty in the mortgage industry.”

A full-blown dismantling of the CFPB will, however, face opposition from staunch supporters in the Senate, including the Bureau’s main architect Sen. Elizabeth Warren (D-MA), who has openly vowed to protect the agency in recent comments made during a speech to the American Federation of Labor and Congress of Industrial Organizations.

At the very least, the CFPB will see new leadership under Trump, considering the fact that the first term of his presidency coincides with the 2018 term expiration of current Bureau Director Richard Cordray.

Assuming there is no legislative change between now and 2018 that reorganizes the leadership framework of the CFPB, a new leader could bring a dramatic change in philosophy for how the Bureau carries out its consumer protection initiatives.

“The Bureau has a large staff that has been hired over the last five years and are obviously committed to the Bureau’s mission,” Olson said. “But there are a variety of philosophies on how to best protect consumers, so a change in leadership does not necessarily mean an end to consumer protection.”

One consumer protection philosophy is rooted in providing strong disclosures that allow consumers to protect themselves by making informed decisions, he said, whereas another philosophy focuses more on deterring undesirable practices and incentivizing compliance through public enforcement actions that impose significant penalties.

“Those are all items in the Bureau’s ‘toolkit’ that the CFPB can pull out and use depending on the policy issue and the Bureau’s objectives,” Olson said. “A new director might choose to focus more on some of these tools than others.”

As for other federal agencies—like those directly influential to the reverse mortgage industry—such as the Department of Housing and Urban Development and the Federal Housing Administration, leadership in these organizations are cabinet positions that will turn over once the Trump Administration assumes office in January.

While the election of Donald Trump as the 45th President of the United States has been met with contention, others, including one mortgage industry trade group congratulated the President-Elect and urged him to focus on key issues facing the U.S. housing market.

“MBA will work with President-Elect Trump and his Administration, as well as with the new Congress, with the goal of advancing an agenda that restores housing as a lead economic driver for individual wealth creation and the nation as a whole,” said David Stevens, president and CEO of the Mortgage Bankers Association, in a written statement.

“Therefore, it is critical that President Trump focus on three main areas—ensuring an adequate supply of affordable housing, bringing first time homebuyers back into the housing market and ensuring certainty in regulations,” Stevens added. “We are looking forward to engaging with policymakers, new and old, to guarantee sustainable access to credit for qualified consumers, and restore balance and prosperity to the real estate markets.”

[UPDATE]: Following the publication of this article, the transition team of Donald J. Trump revealed intentions to replace the Dodd-Frank Act.

“The proponents of Dodd-Frank promised that it would lift our economy,” says the website statement posted by Trump’s team on Thursday. “Yet now, six years later, the American people remain stuck in the slowest, weakest, most tepid recovery since the Great Depression.”

“The Dodd-Frank economy does not work for working people,” the statement reads. “Bureaucratic red tape and Washington mandates are not the answer. The Financial Services Policy Implementation team will be working to dismantle the Dodd-Frank Act and replace it with new policies to encourage economic growth and job creation.”

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