Barely a few hours after the White House confirmed that President Obama would use a controversial recess appointment to install former Ohio Attorney General Richard Cordray as the director of the Consumer Financial Protection Bureau, both Obama and Cordray were sitting at the dining room table of Endia and William Eason; the Easons, both in their 90s, nearly lost their home due to “trickery and abuse” by a non-bank mortgage broker.
“The Easons need someone who will stand up for them,” President Obama told a crowd later at a Cleveland high school. “Millions of Americans need someone who will look out for their interests. They need someone like Richard.”
Part of Richard Cordray’s job will be to increase oversight of mortgage brokers, which has already started with new underwriting standards mandated by the Dodd-Frank financial reform legislation. His appointment will finally allow the CFPB to start regulating non-depository firms (non-bank lenders), which up to now it could not.
“And that could have a big impact,” says Guy Cecala, CEO and Publisher of Inside Mortgage Finance. “A lot of these firms – ranging from mortgage brokers to large lenders like PHH – have effectively escaped regulation in the past. Now they will not only have to submit to reporting but also lending regulations previously only extended to depository institutions.”
That will likely take a while, as Cordray settles in, but there are more near-term implications of the appointment, like that he could potentially help finalize a deal with the state attorneys general and the big banks over the so-called “robo-signing” scandal.
“As a former AG, he could use that to his advantage in the ongoing negotiations with the AGs,” notes Edward Mills, policy analyst at FBR. “Beyond a settlement, what we would be looking for are updated disclosure documents that are easier for consumers to understand and a definition of what is a “qualified mortgage” – which sets in place new consumer protections on all mortgages.”
And even beyond the short and long term implications of Cordray’s new role at the CFPB is the significance of the recess appointment itself on something even more crucial to housing: The Federal Housing Finance Agency, overseer of Fannie Mae and Freddie Mac. The FHFA has been run by an acting director, Edward DeMarco, for several years.
DeMarco has stood in the way of various government attempts to use Fannie Mae, Freddie Mac and the FHA to help troubled borrowers and resuscitate the overall housing market. He has consistently argued that his job is to protect the books of these mortgage giants, not to ameliorate the dyspeptic housing market.
If the President can use the recess appointment for Cordray, then he could potentially use it to replace the very controversial DeMarco.
“A different FHFA director might take a more expansive view of what is needed to help housing,” notes Jaret Seiberg, financial services policy analyst at Guggenheim Securities. “That opens the door to much bigger refinancing programs than what have been adopted so far. For borrowers, that means lower rates which helps the economy, helps housing and helps the President’s re-election effort.”