NAIHP vs. The Fed Rule

We end this week on the big industry news item of the week, which is the lawsuit that Mark Savitt and the National Association of Independent Housing Professionals have filed against the Federal Reserve to prevent the Fed Rule on Loan Originator Compensation from being enacted.  There have been rumors this week that the lawsuit was really a hoax, but "Housing Wire" has a link to the court documents on its website.  "Housing Wire" is also reporting that the National Association of Mortgage Brokers has filed a similar suit, and a press release issued by NAMB today confirms it.

First, let me say that I was a member of the National Association of Mortgage Brokers from 1998 to the end of 2007, when market conditions became too bad for me to justify the expense of involvement.  I helped to found the El Paso Association of Mortgage Brokers chapter in 1999, and I served as the President of the chapter from October 2001 to October 2002.  I participated in six national legislative conferences and attended state conventions up until 2005 when I began attending the Western Regional Conference in Las Vegas.  So I am very familiar with the organization.

While I do not know Mark Savitt personally, I have met and had conversations with him.  I have always believed him to be a good representative for our industry.

Having said all of that, if you are counting on these lawsuits to actually stop or even delay implementation of this bill, you need a new plan--immediately. The NAIHP lawsuit alleges that the new rule is "arbitrary and capricious" and "in excess of statutory jurisdiction and authority."  NAIHP wants the Federal Reserve to withdraw the rule and wait for the Consumer Financial Protection Bureau to implement its own regulations. (I have not seen a copy of the complaint filed by NAMB, although I did watch a video from the legislative chair who says that they are using an entirely different argument.  Since they did not clarify what that argument was, I will comment only on the NAIHP argument.)

One problem--the Consumer Financial Protection Bureau, when it is finally up and running, will be housed within the Federal Reserve.  So although the CFPB is autonomous, we can expect its thinking and its actions to pretty much mirror the thinking and actions of the Federal Reserve Board.

My second problem with this is the statement that the FRB rule is "in excess of statutory jurisdiction and authority."  Actually, its not.  The Dodd Frank bill opens the door for agencies like the FRB to exercise rule-making authority on many levels.  Really, Dodd Frank is just an enormous framework against which to write new legislation and to enact new rules.  While the bill itself does clearly set into law some new regulations--for example the Merkley amendment which caps loan originator compensation at 3% from all sources--much of the bill opens the door for the completion of a lot of studies, the creation of a number of powerful new governing entities, and the development and implementation of new statutory rules by those entities.  It is really just a huge backdrop for writing legislation without having to go back through Congress.

Anyone who reads the Dodd Frank bill is going to be struck by the amount of power that the bill gives to the various agencies--including power for the Federal Reserve to annihilate the independent loan originator.  And I believe that a judge is going to see this the same way--as long as Dodd Frank is the law of the land, the FRB and the other agencies now existing and soon to be created pretty much have the power to do whatever they want.

The final problem with the lawsuit is the last minute nature of the filing.  The Final Rule was released last August.  The industry has had over six months to react to it.  Filing a lawsuit now in March, three weeks before implementation, is a little bit like locking the barn door after the horse has not only gotten out but has run into the street and been hit by a car.  It's just simply too little too late.

Having worked on grass roots letter-writing campaigns and grass roots lobbies when NAMB worked against the RESPA reform rule, successfully from 2002 to 2004 and unsuccessfully in 2008 and 2009, I know that no amount of effort on the part of a trade group can guarantee results.  But if NAMB and NAIHP want to make a meaningful contribution to the financial services industry, they need to focus their next efforts on a public awareness campaign to get Dodd Frank repealed and to stop massive government takeovers of small business.  They would have better luck with that than they will arguing to a federal judge about why the Federal Reserve needs to be reigned in.  And, in the end, if successful, they would actually have made a huge contribution to the small business community and the future of housing finance in the U.S.

For related posts go to http://www.frontier2000.net/

The Fed Compensation Rule, the SBA and Snowfall

I am writing this post today, as I do all of my posts, sitting in my office with a large picture window to my left.  What makes today different is that for most El Pasoans, and for many Americans, today is a snow day.  I have received telephone calls on my cell phone today from work colleagues who assumed I did not make it to the office since the icy streets kept many business people at home and resulted in school closures city wide.  Fortunately, because of the close proximity of my office to my home and the well-maintained streets which connect those two points, I have never had a day in almost eight years at this location that I was unable to get to work.

As I did my work this morning, I noticed the gently falling snow, and I thought about the impact that those tiny, seemingly harmless little flakes are having today on the entire nation.  Airports are closed, schools are closed, travelers are stranded, and offices are shut down all because of tiny bits of ice.  By itself, one snowflake would be unnoticeable--en masse they have defeated armies.  (For example, Napoleon's army was not able to conquer Russia because of the fierce Russian winters and heavy snow.)

This principle holds true for many situations in life.  Take, for example, regulation.  We have seen regulation upon regulation in our industry implemented over the last two years.  Individually some really were not very difficult.  For instance, the recently implemented changes to the truth in lending form that became mandatory two days ago were inconvenient and unnecessarily expensive, but they did not really pose a challenge other than the cost of compliance.  Other changes presented more challenges.  Learning to comply with the new good faith estimate requirements in 2010 posed a real difficulty as did completing all of the licensing requirements for the Safe Act.  But individually, these would not have been insurmountable.

Now on April 1, 2011, the mortgage industry is facing its greatest challenge to date with the implementation of the Federal Reserve rule on compensation of loan officers.  With fewer than sixty days left before implementation, the mortgage industry is scrambling to get a clear guidelines as to how to implement the rule and how to comply with it.

Two weeks ago, the SBA Office of Advocacy sent a letter to the Federal Reserve requesting that they provide guidance to small companies.  The Fed responded with a four page letter which was mainly designed to silence the Office of Advocacy rather than to deal with the specific issues.  This week, the Office of Advocacy has written to the Federal Reserve once again requesting clear guidelines for small entities for implementation of the new rule and requesting a delay in the final rule until small businesses can be trained on how to comply with the new guidelines.

The National Association of Mortgage Brokers is on board with this fight and they are circulating the SBA's letter and asking for people employed in the industry to send the letter on to their congressional representatives to pressure the Federal Reserve for a delay.  Personally, I think that the chances of getting any sort of a delay on this are about as slim as that of a snowball surviving in Florida.  We went through much the same process with the implementation of changes to RESPA and the new good faith estimate just over a year ago.  The industry begged for more time and tried to utilize congressional relationships to pressure HUD into giving us a stay, but in the end the rule was implemented exactly as scheduled.  I believe that this Federal Reserve rule will follow exactly the same course.

However, the results of implementing this rule are going to be disastrous.  The housing market is facing a double dip not because no one is willing to buy houses, but because so few consumers can qualify under the stringent new standards.  The net result of the Federal Reserve rule is not going to be cheaper, more transparent mortgages.  It is going to be more expensive, less available mortgages, more inventory on the market that cannot be purchased because interested would be home buyers cannot get the loans, and more unemployment as an increasing number of people who are working in our industry find themselves out of a job.

Perhaps in their eagerness to stack regulation on top of regulation while trying to make the world a safer place for home buyers, all of our governing bodies need to look at the example of the snowflake.  By packing regulations on our industry, the Federal Reserve, along with HUD, the legislative and executive branches of government, and all of the other entities which have a hand in regulating the housing finance industry are bringing the entire nation to a stand still.

For related posts go to http://www.frontier2000.net/.