Thank you for inviting me today. For more than five years now, I have had the honor to serve our country as the first director of the new U.S. Consumer Financial Protection Bureau. In that time, we have built a brand-new federal agency from scratch. And we have sent a strong message to the banks and large financial companies that in a frank and fair way we are pushing them to clean up their act and put their customers first.
That has been hard work. It has been good work. And, above all, it has been enormously satisfying and important work. Our vision has been to reorder a consumer financial marketplace that works for American consumers, responsible providers, and the economy as a whole.
When we do this work, it can feel like we are sitting right there with people at their kitchen tables all over America – agonizing with them, consulting with them, planning with them. We deal with common, everyday products like credit cards, auto loans, mortgages, and bank accounts. We help people know before they owe by arming them with information they need to make smart decisions about their money. We put in place protections against predatory practices. We hold companies accountable for following the law, and we come down hard on them when they do not. So far, our enforcement work has led to about $12 billion in relief to 30 million people who were cheated or mistreated, and who deserve to get things fixed and get their money back. People from all over the country thank us all the time for getting results, and they often seem surprised to find that we are doing this work on their behalf.
Have you ever been treated unfairly by a large, often faceless, company? When that happens, it can feel like the deck is stacked against you. It may seem there is almost nothing you can do to make the company correct the problem. Well now you can complain directly to us. So far, we have handled well over a million complaints about problems with consumer finance and household credit. We send complaints to the company and work with them to get a quick response, generally within 15 days.
Doing this work, we can provide real help for people. One of them is Deborah Jacobs. When she first heard about our agency, she says she thought, “Well, that’s a waste of taxpayer dollars.” But in 2014, she fell behind on her mortgage and tried to get it modified so she could save her home. The bank that had the mortgage approved the modification, but tacked on a nasty surprise – a closing fee of $11,600. She said that made no sense, because if she actually had $11,600 then she would not have had a problem. So she tried to find out why, but got no answers, and no relief, until she turned to the Consumer Bureau. Four days after she submitted her complaint to us, her bank sent her new loan papers – this time, without that $11,600 fee. And because of that, she was able to keep her home. Now when she talks about us, she says “they’re my saviors.”
Few events dramatized the need for the Consumer Bureau more than the mortgage market meltdown that spawned the financial crisis almost a decade ago. In fact, the Consumer Bureau emerged out of the ashes of this crisis, which was the most spectacular economic collapse of our lifetimes. In a breathtakingly short time, Americans lost millions of jobs, millions of homes, and trillions of dollars in household wealth. The true blame for the crisis went to a dysfunctional U.S. mortgage market, which, at a value of some $10 trillion, is the single largest consumer finance market in the world.
In most credit markets, a lender traditionally considers a borrower’s ability to repay because of the risk of the negative consequences of default. But in the casino economy before the crisis, almost everyone involved – mortgage brokers, lenders, appraisers, investment bankers, even rating agencies – reaped rewards that were front-loaded and often unrelated to the long-term performance of the loans. Risks were often downplayed, based on the empty assumption that home values would keep on rising forever.
This freewheeling atmosphere prompted some mortgage lenders to offer risky, often high-priced loans to borrowers who had little realistic chance of paying them back. For example, lenders peddled “no-doc” and “low-doc” mortgages to consumers who purportedly “qualified” for loans that were in fact far beyond their means, which they never had to prove or justify. Other loans were being underwritten over artificial “teaser” rates rather than the true costs of the loan. And far too many borrowers found it too easy to get so-called “NINJA” loans – even if you had no income, no job, and no assets, you still could get approved for a substantial loan. The unrealistic teaser rates or interest-only payments for the first year or two misled people into thinking the loans were affordable. And if the loans went bad, well, that was someone else’s problem. It is no wonder, then, that originators embraced even more risk. Exotic loan products became more common, which created tremendous pressure in the marketplace. Responsible lenders faced the prospect of losing market share to those willing to make irresponsible loans, and everyone found it difficult to avoid the race to the bottom, ending in an abrupt mortgage market crash.
In the wake of this crisis, many consumers found themselves deeply underwater and struggling to figure out which debt to pay first. We remember it well, as Ohio was one of the first states to experience the foreclosure crisis. The ensuing tsunami of delinquencies overwhelmed the mortgage servicing industry, those responsible for collecting from borrowers on behalf of the owner of the loan. But the industry’s problems started even before that. Many servicers failed to provide the basic level of customer service that borrowers deserve, costing them money and dumping some into needless foreclosures. For many, dealing with sloppy mortgage servicing became an ongoing nightmare.
But as mortgage delinquencies multiplied, so did these problems. Servicers were unprepared to work with so many borrowers to be able to deal with their individual problems. People did not get the help or support they needed, such as timely and accurate information about options for saving their homes. Servicers failed to answer phone calls, routinely lost paperwork, and mishandled accounts. Some illegally rubber-stamped foreclosure affidavits without verifying their truth, called “robo-signing,” to speed up the foreclosure process. Communication and coordination were poor, leading many to think that they were near a solution, only to find that their homes had been foreclosed on and sold off right out from under them.
In response to these crises in the mortgage industry, Congress ordered major reforms. The Consumer Bureau was directed to put in place careful guardrails to make sure lenders do not stray into dangerous areas. After all, when you are driving down the road, you cannot just go anywhere at any speed you want. You cannot operate recklessly or by violating the rules. Such common-sense rules of the road are needed in any marketplace. They are especially important for a mortgage, which for many people is likely the single biggest transaction of their lives. When people take out a loan to buy a home, they deserve to have confidence that they are not being set up to fail. With confidence that the market offers them better and stronger protections, they can be more actively engaged in finding a good outcome.
So to this end, the Bureau created new "back-to-basics" mortgage rules to address the practices that sparked the financial crisis. Our rules protect people at every stage of the process – from shopping for a loan, to closing on a mortgage, to paying it back. Our ability-to-repay rule protects people from dangerous lending practices by requiring lenders to determine that their customers can actually afford to pay back the mortgages they are offered. Through our Know Before You Owe mortgage disclosures, we are making sure consumers have the information they need, when they need it, when they shop around for a loan. Under our new rules, mortgage servicers must now give consumers clear monthly mortgage statements that break down principal, interest, fees, escrow, and due dates. Servicers must reach out to struggling borrowers to inform them of options they may have to avoid foreclosure. When consumers notify servicers about errors, that notice must be acknowledged and investigated, and consumers must be informed in a timely manner about how it was resolved. And servicers must maintain accurate and accessible documents and records, and provide information to borrowers, mortgage owners, and the courts.
The first set of mortgage rules took effect in January of 2014, and they are integral to a mortgage market that is now much safer for consumers and responsible providers. And we are seeing increased confidence in the market, both by consumers and businesses. In the first half of this year, consumers took out more than $500 billion in mortgages to purchase a home. This is 12 percent more than at the same time last year. Last year, purchase mortgages were up 14 percent over the year before. And the year before, they were up from the year before that. Last year also turned out to be the highest year for existing home sales since 2006. And tellingly, the overall mortgage delinquency rate on one-to-four-unit residential properties is at its lowest level since 2000, and the percentage of homes in foreclosure stands at a 10-year low.
These protections are important steps forward, but they do not erase the damage done to millions of families. The floor gave way beneath many whose wealth was tied up in their homes, especially in communities of color. When some owners lost their initial teaser rates, the costs of their mortgages jumped and, for many, became unaffordable. When risky mortgages began to collapse, home values plummeted in many communities and others became exposed to losing their homes. Homeownership, long the ticket to prosperity for middle-class Americans, betrayed millions of people as foreclosures dumped them out of their homes, stripped them of their wealth, and ruined their credit records. The financial drain was especially dramatic in Hispanic and African-American communities, where average household wealth was cut almost in half. The recovery has been uneven and painful and it may take generations to restore what was lost.
For them, and for all consumers, the Bureau is steadfastly committed to expanding access to the financial system, and taking action against those who seek to deceive others or discriminate against them. We want to make sure that all people are treated fairly, period – no ands, ifs, or buts. It is not simply the right thing to do. It is also good for consumers. It is good for responsible businesses. And it is good for the economy as a whole. To fail to do so is to risk condemning our friends and neighbors to the bitterness that can fester from unfulfilled promises – especially the promise of a better life for the next generation that we continue to believe in so deeply here in America.
Theodore Roosevelt, who envisioned our magnificent system of national parks, said: “This country will not be a good place for any of us to live in unless we make it a good place for all of us to live in.” At the Consumer Bureau, I know we have been making real progress to clear a pathway to opportunity, and to improve the financial marketplace all around us. Our dedicated efforts reflect our goal to put people in a position where they can make good choices for themselves that enhance their lives and empower them to succeed. In short, we want to see that every consumer counts. Thank you again for having me 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.