BLOG VIEW: If Richard Cordray were the navigator of the Santa Maria, Christopher Columbus would have discovered Spain. Why do I say this? Because in his capacity as the director of the Consumer Financial Protection Bureau (CFPB), Cordray has engaged in countless circular journeys that inevitably wind up at the same destination: Mortgage bankers are bad guys that must be punished.
Earlier this month, Cordray put forward a series of proposed rules to govern mortgage servicers. The proposals, on the whole, are intelligent and worthwhile. The manner in which they were presented, sadly, is another story.
‘The mortgage servicing rules we are considering reflect two basic, commonsense principles – no surprises and no runarounds,’ Cordray said in announcing his proposals. ‘For too long, mortgage servicers have not been held accountable to their customers, and the result has been profoundly punishing to homeowners in distress. It's time to put the 'service' back in mortgage servicing.’
Shortly after that, Cordray's CFPB issued a bulletin that warned financial institutions that they may be held responsible for the actions of the third-party vendors they employ for products and services. Again, the impetus behind the action was not unintelligent, but the language used to present it was unfriendly.
‘Consumers are at a real disadvantage, because they do not get to choose the service providers they deal with – the financial institution does,’ says CFPB Director Richard Cordray. ‘Consumers must not be hurt by unfair, deceptive or abusive practices of service providers. Banks and nonbanks must manage these relationships carefully and can be held accountable if they break the law.’
Ever since a certain Harvard law professor put forward the idea for the CFPB, the bureau has pegged the mortgage banking industry as the eternal villain that exists solely to frustrate and embezzle hapless homeowners. Whether ‘profoundly punishing’ homeowners or hiring vendors who specialize in ‘unfair, deceptive or abusive practices,’ in Cordray's view, mortgage bankers are ruthless and reckless entities that cannot be trusted.
The other week, I received an email from a financial services officer who had left the default management side of the servicing industry. This individual stated that it was impossible to continue working in an industry where business professionals are endlessly demonized for doing their jobs and where genuine physical risks and dangers often come into play when servicers try to gain control of a foreclosed property.
I would have liked to run that individual's email verbatim, but this person requested that I not publish the message. I can understand the request for anonymity all too well. Very few people in this industry are willing to stand up and challenge Cordray's toxic language – especially his broad slams against servicers. Not since J. Edgar Hoover has there been a non-elected civil servant who wielded so much power with so little accountability.
If I may, I would like to step into that void and offer a rebuttal to some of Cordray's recent commentary.
For too long, irresponsible borrowers have not been held accountable for their actions, and the result has been profoundly punishing to financial service institutions and the communities where the borrowers reside. Today's servicers are required to track down borrowers that intentionally elude all attempts at contact and negotiate with borrowers who think honoring a legal document as an antediluvian custom. These people prefer to hide their actions behind a euphemism – ‘strategic default’ – rather than define their behavior in less flashy terms: ‘not paying your bills.’
I have yet to hear anyone connected with the CFPB acknowledge the presence of unresponsive and uncooperative borrowers, nor has the CFPB ever called attention to the difficulties that many servicers face in dealing with such people. Yes, many people have been financially damaged by the recession and the lethargic recovery that followed, and their problems in repaying their mortgages are not their fault. However, the mortgage banking industry has been more than aware of this situation and has gone out of its way to help.
Since 2007, approximately 5.33 million permanent solutions have been offered to homeowners through the HOPE NOW coalition of mortgage industry entities – which certainly puts the ‘service’ back into servicing! To date, however, the CFPB has never publicly acknowledged HOPE NOW's crucial work that enables people to keep their homes.
Yes, there were servicers who did a terrible job and exercised poor judgment – can you say ‘robo-signing’? But Cordray's constant attempts to condemn all mortgage servicers as being dishonest and untrustworthy is obnoxious, and he needs to stop this antagonistic language immediately.
And, if I could, I'd like to refer back to my opening paragraph and throw out a quote attributed to Columbus: ‘By prevailing over all obstacles and distractions, one may unfailingly arrive at his chosen goal or destination.’ I am sure that mortgage servicers will be able to reach their goal and continue to do a worthwhile job despite the obstacles and distractions that the CFPB is throwing at them.
– Phil Hall, editor, MortgageOrbÂ Â