Consumer Financial Protection Bureau may not be enough to clean up mortgage industry

by Broderick Perkins

(4/15/2013) - As the Consumer Financial Protection Bureau (CFPB) wraps up its second year in existence, its regulatory overhaul of the mortgage industry's long-term dysfunction has been thrust into the limelight.

Unfortunately, CFPB is playing catch up ball.

Recent reports reveal lenders and mortgage servicers continue some of the same dirty tricks that forced the U.S. Congress to enact stronger federal laws to protect consumers and keep financial companies from taking them to the cleaners.

Born of the massive Dodd-Frank Wall Street Reform Act, the CFPB officially opened in July 2011 as the first-ever federal watchdog with a mission to protect consumers from abusive consumer financial services and toxic financial products.

Just as you look to the Consumer Product Safety Commission (CPSC) for protection from harmful, potentially deadly products; just as you look to the Federal Trade Commission (FTC) for protection from unfair and deceptive business practices, the CFPB is the federal government's champion for consumer rights and consumer protection in the financial services industry.

As a major component of the financial industry, the mortgage market was largely responsible for the financial meltdown that sent the economy in a tailspin and crashed it into the Great Recession, the greatest recession since the Great Depression.

As the nation continues to struggle to get clear of depression-era-like debris that still litters the economy, reports are surfacing that mortgage lenders and servicers have continued bad business as usual.

CFPB's work has gone a long way toward cleaning up abuses on the front end of mortgages, by preventing lenders from steering consumers to loans they can't afford, by forcing lenders to provide clearer disclosures and by enforcing those new regulations.

However, much of the abuse from the mortgage industry today remains on the back end - at the point where consumers are vulnerable to victimization the second time around - after they struggle with mortgages lenders should have never permitted.

Continued mortgage industry abuse

A flurry of recent reports this April allege lenders continue to victimize homeowners who face foreclosure, homeowners attempting to improve their mortgage situation and homeowners in certain racial and income groups.

• Most recently, on April 12, Sen. Barbara Boxer (D-California) appealed to the National Mortgage Settlement (NMS) Monitoring Committee; U.S. Attorney General Eric Holder; Secretary of the U.S. Department of Housing and Urban Development (HUD) Shaun Donovan' and National Mortgage Settlement Monitor Joseph Smith, to investigate reported violations of the NMS, much of which the CFPB codified as federal law designed to overhaul mortgage regulations.

• Sen. Boxer was referring to the California Reinvestment Coalition's (CRC) April 3 survey of nonprofit housing counselors and legal service providers who reported major lenders continued outlawed practices of failing to provide single points of contact for struggling homeowners, dual tracking, failing to meet deadlines for mortgage modification applications, losing modification documents and other illegal short comings.

• On April 10, the Opportunity Agenda's "What America Can Do to Stop Foreclosures and Fulfill the American Dream" voiced disapproval over the final version of the Independent Foreclosure Review, which was designed to address the financial damage to struggling homeowners caused by misconduct from mortgage lenders and servicers.

The agenda says the funds being sent to victims aren't nearly enough to fully address the damage caused by mortgage industry misconduct and recommends forcing lenders to take bolder steps.

• Finally, given all the recent allegations, the Center for Responsible Lending and Consumers Union, on April 8, issued a report that said more states with efforts like California's Homeowner Bill of Rights need to bolster fledgling federal efforts to stop the mortgage industry's deviant behavior.

More housing cleaning necessary

That's not a bad idea. While the feds have done much to rein in the mortgage industry, just as much work remains to be done.

Thus far, the CFPB has issued a host of new federal mortgage regulations, including those to overhaul industry behavior including rules that address consumers true ability to repay a mortgage, high-cost mortgages, mortgage escrow, mortgage servicing, appraisals, mortgage origination compensation and even homeownership counseling.

It also has recently gone after mortgage fraud, unveiled an open-to-the-public complaints data base that includes an already staggering number of mortgage complaints and devised an implementation plan for rolling out the new mortgage rules - for starters.

And the mortgage component is just one division of CFPB operations designed to educate consumers, research the financial industry and enforce the rules not only for the mortgage industry but also for credit cards and other credit services, student loans, older Americans, members of the military, minorities and women.

The CFPB should keep up the good work, more states should come forward to help enforce mortgage rules for their residents and the mortgage industry ought to get its house in order.

The recovering economy and housing market are counting on it.

While CFPB is mandated to protect and serve, states have been slow to move to its aid and the mortgage industry is still fiddling around while consumers get burned.