Where the CFPB's pause impacts mortgage lenders

The pause at the Consumer Financial Protection Bureau is raising questions about some of the behind-the-scenes work the regulator deals with mortgage lenders. 

New acting director Scott Bessent's order to halt work at the bureau won't affect daily origination activity, experts said. Industry attorneys advise lenders to still follow all lending laws, as state regulators can still hold them liable for violating rules like the Real Estate Settlement Procedures Act.

"We're advising our clients, until you see a regulation or rule change, or court decision, or Congress changes the law, you should continue in your day-to-day as if nothing has changed," said Peter Idziak, a senior associate with Polunsky Bietel Green who represents mortgage clients.

Instead, regulatory experts are mulling the impact of bureau functions such as examinations, enforcement proceedings and guidance inquiries. Bessent's Monday memo to CFPB staff, which wasn't made public, calls on the bureau's employees to stop actions including investigative activities and public communications. 

"Institutions going through enforcement proceedings, examination reviews, or very specific things to an institution may see some very immediate benefits," said Jonathan Kolodziej, a partner at Bradley Arant Boult Cummings and regulatory compliance expert. "Some pullback, some dismissing of cases or investigations, or perhaps an examination completely pauses." 

Bessent, who has been confirmed as Treasury secretary, for the time being replaces Rohit Chopra, the Biden appointee who held his seat for two weeks during President Trump's initial overhaul in Washington, D.C. 

Attorneys who spoke with National Mortgage News said the pause was expected with the administration change. Incoming leadership wants to assess whether the bureau's pending deadlines and other actions are consistent with the Trump administration's policies, said Kolodziej. 

There is no clarity however on how long the pause will last. The uncertainty is heightened because of calls to "delete" the CFPB or strip it of its funding, although such moves would require an act of Congress. 

Richard Horn, co-managing partner of Garris Horn LLP, questioned what would happen to issues that come up during lender exams, and whether they would turn into enforcement actions. The veteran attorney is a former CFPB senior counsel and led final rulemaking for the TILA-RESPA integrated disclosure rule. 

He also asked about guidance inquiries, which he described as a helpful function for the industry that goes under the radar. A regulatory inquiries group at the CFPB's Office of Regulations gives informal advice, typically over phone calls, to law firms and trade associations, Horn explained. Clients have already asked him about outstanding inquiries. 

"That function is helpful, because the laws and regulations can have a number of gray areas," said Horn. "It's unclear if that function is subject to pause, the memo stops public communications."

Bessent's guidance has already led the CFPB to ask for adjournments in two separate federal lawsuits challenging its small business data collection rule and its addition of discrimination as an unfair practice to its exam manual.

Former president Biden's CFPB weeks ago sued Vanderbilt Mortgage and Finance for alleged risky lending practices. An attorney for the bureau in that case deferred comment Wednesday to the press office, which didn't return a request for comment. A spokesperson for Vanderbilt referred National Mortgage News to the company's prior comments calling the case "politically motivated, regulatory overreach."

Chopra's bureau also penalized lenders for their alleged redlining actions, reaching settlements in which the companies admitted no wrongdoing for sums that went into the CFPB's Victim Relief Fund. Those actions include an 11th-hour consent order with since-defunct Draper and Kramer Mortgage Corp. for $1.5 million.  

While enforcement has been halted, lenders which agreed to redlining settlements in recent months probably paid such fines immediately following court actions, an attorney said. Those agreements remain binding, experts said, and companies are still inclined to follow other stipulations from those settlements.

"I guess there is a potential that companies can get the CFPB or DOJ to renegotiate," said Horn, noting the agreements are usually cosigned by federal prosecutors. "But is that something that agencies are going to want to spend their resources doing?"

While new redlining settlements are very unlikely, the fate of other lending-related rulemaking remains uncertain. The bureau's proposed modernization of servicing rules, pitched last July, could go away. Mortgage brokers will watch how the CFPB's axing of medical debt from credit reports will unfold, said Valerie Saunders, chief executive strategist at the National Association of Mortgage Brokers.

While the CFPB's nonbank registry is already underway, companies with spring and summer deadlines to register could also be spared, attorneys speculated. 

As the regulator may not be currently enforcing lending laws, companies should remain vigilant. State attorneys general can still uphold consumer financial protection laws, and borrowers can still file civil lawsuits against mortgage players. 

"We do expect to see an uptick in action by certain, probably democratic-led or democratic state AGs to fill the perceived gap that they see in federal enforcement," said Idziak. 

In the meantime, the industry is in a wait-and-see mode regarding the future of the CFPB. 

Mortgage trade groups have rejected some of the larger political calls to eliminate the agency, calling rather on more opportunities for engagement on regulatory affairs. Eliminating the bureau would be a missed opportunity to reform items like RESPA Section 8 and the loan officer compensation rule, Horn said. 

"Using a sledgehammer when really a scalpel would be the better tool would be unfortunate," he said.