Director Kraninger’s Remarks During the Women in Housing and Finance Annual Symposium
Good morning. Thank you, Kara, for that kind introduction. And thank you to Women in Housing and Finance for hosting this event. I appreciate the opportunity to be with you today and I look forward to the day when we all will be able to once again have safe in-person gatherings.
I am grateful to Women in Housing and Finance for all that you have done in more than 40 years to advance opportunities for women in housing and financial services, both in the private and public sectors. Significant progress has been made since you started in 1979, and this has been in no small part due to your impressive networks spanning financial institutions, trade associations, federal and state regulatory agencies, government-sponsored enterprises, congressional committees, nonprofit organizations, the press, and law and accounting firms.
Like Women in Housing and Finance, promoting the advancement of women in the workplace is a priority at the Consumer Financial Protection Bureau. Currently, 34 percent of the federal senior executive service workforce is made up of women. And I am pleased to report that we are beating the government average at the Bureau. As of this month, 48 percent of our senior executives are women. This workforce encompasses a range of backgrounds, identities, perspectives, and working styles. Workforce diversity and inclusion are key components of our strategic plan. And I can assure you I will do my part on this front.
Today I’d like to give you a high-level snapshot of how the Bureau is helping consumers deal with some of the ramifications of COVID-19, then I want to tell you about our latest regulatory work on two housing sector subjects I know you care about very much, the Home Mortgage Disclosure Act and Qualified Mortgages.
During the global health emergency, the Bureau has been working to protect, promote, and preserve the financial well-being of consumers.
As COVID-19 began to spread in the U.S., it quickly became apparent that we were not only facing an emerging health crisis, but also an emerging economic crisis. The Bureau ramped up its efforts to publish and promote resources to better meet consumers where they are and address this growing need. To date, our consumer education response to COVID has resulted in more than 50 blogs and videos that have been accessed by more than 3 million users. These materials are available in seven different languages and have been constantly updated to adapt to changing dynamics.
On our website, consumers can find information on what scams they should be watching out for, how to protect their credit, and how to navigate their mortgage and rent options during this uncertain time. We have provided resources on the economic impact payments as well as resources for small business owners seeking assistance from the Paycheck Protection Program. We are helping students and their parents understand student loan payment suspension options. And, we have provided specific information to our vulnerable populations, including older Americans and servicemembers. We believe that staying informed, engaged, and proactive will help consumers weather this crisis.
While trying to reach as many struggling consumers as possible, we saw that the pandemic was impacting the staffing and operations of financial companies that wanted to help the large influx of customers seeking relief and accommodations. In response, the Bureau took temporary and targeted actions to support consumers by allowing financial companies to focus their resources on assisting consumers. This includes providing temporary flexibility on some data collections for industry on Bureau-related rules. For example, the Bureau will not expect quarterly HMDA data reporting by certain covered mortgage lenders, though entities must still collect and record HMDA data throughout the year in anticipation of making their annual filings in 2021 (I’ll get to more about the Home Mortgage Disclosure Act in a minute).
And, I want to note that the Bureau acted swiftly to emphasize to firms that they must comply with the CARES Act. We provided the necessary guidance to companies on how to do so as well as how they should work with consumers to provide relief, including mortgage forbearances and other options.
Importantly, while we are willing to work with companies in a temporary and targeted manner to help them help their customers, we will not tolerate those who would exploit the current crisis and harm consumers. We are committed to vigorously enforcing consumer financial law in all markets under our jurisdiction and the pandemic does not change that. Among other efforts, this includes monitoring the marketplace in real time and coordinating on a regular basis with federal and state agencies and regulators. It's this kind of coordinated effort that makes sure we are all working efficiently on behalf of consumers.
Coordinated efforts led us to create another important online resource: a unified, interagency housing website to be the one-stop-shop for consumers who want help knowing their rent or mortgage options. HUD and FHFA partnered with us in consultation with USDA and VA to develop this for consumers at cfpb.gov/housing.
The website provides accurate, impartial information to let consumers know their options and make the best decision for their situation. And if new federal laws addressing housing and COVID take effect, we will respond with timely, accurate updates. Trusted, authoritative government sources can be critical conduits for the distribution of information to the public. We work to reach as many people as we can, including those with limited English proficiency, through our internal distribution channels and Bureau stakeholders. I am proud to say that our education content has been amplified by consumer groups, non- profits, and companies across the nation. I urge you to help us spread this important content and I welcome your assistance.
I also want to stress that we are telling struggling borrowers to reach out to their servicers to understand what options are available to them. Companies can usually answer questions unique to a consumer’s situation and more specific to the products and services they offer. Consumers can also submit a complaint to us.
In the end, the Bureau is here to stand beside consumers at their hour of need. As the pandemic crisis evolves, we must be at the ready to address shifting situations. Being nimble is key, and it’s key for us at the Bureau to maintain our goal of protecting, promoting, and preserving the financial well-being of consumers.
Our response to the pandemic has all been happening while our normal work in the mortgage world continues. In that vein, I want to talk about housing sector regulatory issues, which I know Women in Housing and Finance cares about deeply.
Let’s start with the Home Mortgage Disclosure Act.
As most of you know, HMDA is a disclosure law that requires certain mortgage lenders to collect and report information about mortgage loan applications, including information about denied applications. Each year thousands of institutions report data under HMDA, making it the most comprehensive publicly available information on the mortgage market.
The CFPB works to ensure compliance with HMDA’s reporting requirements—a role we take very seriously. If mortgage lenders fail to report required HMDA data, they violate the law and hinder the ability of the CFPB and others to identify possible discriminatory lending, such as “redlining,” or unmet credit needs in communities across the United States, including low- and moderate-income neighborhoods.
In June, we reported that more than 5,500 institutions filed information on more than 15 million home loan applications last year. On behalf of the Federal Financial Institutions Examination Council and the Department of Housing and Urban Development, the CFPB receives that data, processes it, and provides the information to the public in a variety of HMDA data products. And we do so with some of the most innovative technological tools.
Since taking over the HMDA processing function from the Federal Reserve Board, the Bureau has made process innovations to decrease reporting burden, improve data accuracy, and expand access to the data.
And we also have made regulatory changes on my watch to decrease burden. In May 2019, the Bureau issued a Notice of Proposed Rulemaking to reconsider the thresholds for reporting data about closed-end mortgage loans and open-end lines of credit. In October 2019 and April 2020, the Bureau issued two final rules amending these thresholds to provide regulatory relief to smaller financial institutions.
In May 2019, the Bureau also issued an Advance Notice of Proposed Rulemaking seeking information to determine whether to propose changes to the required data points. We were looking for information regarding the costs and benefits of the data points that the Bureau added or revised in the 2015 final rule. Additionally, we wanted to hear about the costs and benefits of the requirement that institutions report certain business- or commercial-purpose transactions. Based on all that valuable feedback, we are working on a Notice of Proposed Rulemaking. The NPRM also will address possible limitations and restrictions on the disclosure of data reported under HMDA to protect privacy interests.
As part of this continual effort to make sure our rules make the most sense for consumers and businesses, the Bureau is organizing one of its first Tech Sprints to bring together HMDA stakeholders to further innovate in this area. This HMDA Tech Sprint is currently scheduled for March of 2021. I encourage those interested in participating in our Tech Sprints to take a look at the information available on our website about this new program bringing together regulators, technologists, software providers, consumer groups, and financial institutions to develop solutions to compliance challenges.
The HMDA data that mortgage lenders report to the CFPB also help other federal and state regulators, policymakers, researchers, economists, industry, and consumer advocates study and analyze trends in the mortgage market. And we’ve also made considerable efforts to assist community groups that use HMDA data. In the summer of 2018, Bureau staff conducted user research with community groups to determine ways that we could improve the tools, reports, and other resources that we offer to help the public use HMDA data. The results from this helped us make improvements to HMDA resources. And, critically, the engagement informed the development of our new HMDA Data Browser, which we just launched last year and can be used to better explore the reported mortgage lending data. We also delivered a series of consumer-focused online trainings the last few months to demonstrate how to use the HMDA Data Browser, including at the Bureau’s recent Consumer Financial Protection Week in July. This is in addition to the myriad resources available on our website for consumer advocates, financial institutions, researchers, and vendors who use our Data Browser.
Bureau staff have worked very hard on the HMDA Data Browser, and while we are proud of the results, we are working on additional enhancements and welcome your suggestions for improvements. So, please, check it out.
Lastly, I want to talk about Qualified Mortgages as another example of what I believe is a very deliberative rulemaking process in our effort to protect, promote and preserve the financial well-being of American consumers.
As you know, the Ability to Repay requirements under the Dodd-Frank Act prohibit a creditor from making a residential mortgage loan unless the creditor makes a reasonable and good faith determination based on verified and documented information that the consumer has a reasonable ability to repay the loan.
TILA identifies factors a creditor must consider in making a reasonable and good faith assessment of a consumer’s ability to repay or ATR. TILA also defines a category of loans called qualified mortgages for which creditors may presume compliance with the ability-to-repay requirements.
Under the Government-Sponsored Enterprises (GSE) provision of our Ability-to-Repay rule, mortgages which are eligible for purchase or guarantee by one of the GSEs and which satisfy certain statutory criteria relating primarily to features of the mortgage are generally deemed to be Qualified Mortgages. But this provision, also known as the QM Patch or GSE Patch, is scheduled to expire in January 2021.
The GSE Patch was supposed to be a temporary measure. But, contrary to what the Bureau expected in 2013, GSE Patch loans continue to represent a large and persistent share of the residential mortgage loan market. When the GSE Patch expires, many of these loans would not qualify as General QM loans under the current regulations. This is because they either have monthly debt-to-income ratios that are too high or for other reasons, like regulatory impediments to verifying the consumer’s income.
Let’s take a look at some of the numbers. The Bureau estimates that out of 3.12 million closed-end first-lien residential mortgage loans purchased or guaranteed by the GSEs in 2018, approximately 957,000 would be affected by the expiration of the patch this coming January because they had monthly debt-to-income ratios greater than 43 percent when they took out their loans. Although alternative loan options, including some other types of QM loans, would still be available to many consumers who could not qualify for General QMs, the Bureau anticipates that some loans that are currently patch loans would cost more for consumers and some would not be made at all.
Last year, the Bureau issued an Advance Notice of Proposed Rulemaking that reiterated that the patch was intended to, and that the Bureau intended to let it, expire. The notice sought information to determine whether to propose changes in the general definition of QM considering that anticipated expiration.
We received a lot of public comments. And after reviewing them all, through a Notice of Proposed Rulemaking this June, we proposed to amend the QM rule by moving away from the 43 percent debt-to-income ratio requirement. Instead, the Bureau is proposing to replace it with a limit based on the loan’s pricing. We believe this will facilitate a smooth and orderly transition away from the GSE Patch. And we believe it will ensure access to responsible, affordable mortgage credit. We are interested in hearing the views of stakeholders about the use of such a price approach.
In this NPRM, the Bureau proposes to permit lenders to use more flexible standards for verification requirements than under current Appendix Q, which has been rightly criticized by stakeholders as inflexible and inadequate. To also provide critical certainty to stakeholders as to what they need to do to verify in the future, the NPRM includes some specific proposed verification safe harbors. The NPRM importantly encourages stakeholders to develop other verification standards for the Bureau to consider as possible additional safe harbors. I strongly encourage stakeholders to spend the time and effort to come up with such standards to help the Bureau identify verification requirements for the final rule that work.
This summer, the Bureau also issued a Notice of Proposed Rulemaking to extend the expiration of the GSE patch for a short period until the effective date of the proposed alternative or until one or more of the GSEs exits conservatorship, whichever comes first. This would leave the GSE Patch in place during an implementation period to allow creditors to bring their systems into compliance with the revised General QM definition.
All of this is a lot to take in and it signals big changes on the horizon. But as we evolve as a Bureau, it’s important to constantly be evaluating what we are doing and seeing if there is a better way. We are also taking into account the economic impact of the pandemic and thinking about facilitating recovery.
The last thing I want to share with you is that later today we plan to issue a proposed rule to create a new category of qualified mortgages. It will be for first-lien, fixed-rate covered transactions that meet certain conditions. These conditions are that they must meet certain performance requirements for on-time consumer payments over a three-year “seasoning” period; they must be held in portfolio during the seasoning period; they must comply with general restrictions on product features and points and fees; and finally, they must meet certain underwriting requirements. Once these loans meet the seasoning requirement, they would obtain safe harbor QM status.
The Bureau is issuing this proposal to create a new category of QMs because we want to further encourage safe and responsible innovation in the mortgage origination market. We want to encourage lenders to make non-QM loans that can season into QM loans. I urge all stakeholders, including you all, to provide your feedback. Your voice matters, and we want to hear from you.
Throughout the entire process of examining the QM rule and settling on proposed amendments, we took an objective look at both the market data and the comments received. As with all our rules, there is rigorous analysis. There is a transparent process. And, there is a deliberative course that I believe lands in the best place for consumers.
I want to close by thanking you all for inviting me and allowing me to share the Bureau’s recent work. And, I want to reiterate the importance of dialogue and partnerships to create a better consumer financial marketplace. Thank you for your participation.
And, finally, I want to acknowledge the importance of today in the history books. One hundred years ago today Tennessee became the last state needed to ratify the 19th Amendment. It took our great grandmothers and the mothers before them almost a century of protest to get to that seminal legislation. Because of them, we have greater equality when it comes to education, job opportunities, and wages. But more needs to be done. We need more women in leadership. I want to see more women attracted to the idea of mentoring others, taking the mantle of management, and, yes, public service. I want to see more women push forward and put themselves up for these challenges. Because that’s how we will achieve real change.
Thank you again for the opportunity and honor to be here today.
The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.