Ready for what's next

Look, sir, you have to realize something. My father was a revolutionary in 1910. I was born in 1909. I was left alone with my mother, Doña Rosenda, may she rest in peace. I wanted to be a writer. After a while, I became disillusioned. I dedicated myself to what was coming, not what had gone before. That is your task, sir. To understand what it is that remains and not what has gone before. 
Don Rodrigo Pola to Abelardo Holguín, from Carlos Fuentes’ Adam in Eden

This is a tale of two hearings on one topic. Our first hearing was on May 21^st and our second on June 18^th. Our topic is the Qualified Mortgage rule.

I’ll come to my point quickly. The dynamic that gave us Dodd-Frank has changed. Not for everyone, of course, but definitely for some.

* * *

Finding a seat in 2128 Rayburn on May 21^st for a subcommittee hearing on the CFPB’s QM rule was much easier than I expected. In my mind the hearing summary was mostly drafted. Republicans attack the CFPB and the QM rule while Democrats offer a spirited defense of the same. Details to be filled in with any back-and-forth between Rep. McHenry and the two CFPB witnesses.

My first indication I was slightly presumptuous was opening statements. Everyone seemed to have a problem with the QM rule and most were not being particularly polite. Questions were even more intriguing. Responses from the two CFPB witnesses baffling. For the first time, the CFPB was taking direct fire from both Republicans and Democrats.

I emailed a banking lobbyist to congratulate him on a job evidently well done. Even they were surprised by what was unfolding.

The besieged CFPB witnesses seemed unprepared for bipartisan criticism of their agency’s signature achievement. Rather than going on offense, the witnesses went into a defensive crouch frustrating even the friendliest of questioners by speaking in voices so low and soft that members couldn’t hear their long, winding answers to simple questions.

I turned to a friend and said “They must not speak in loud voices at the CFPB.” The response was, “Or prep their witnesses. Did you see how frustrated Capuano was?”

Yes I did. I saw how Rep. Capuano probably went farther in expressing concerns about the QM rule just so the CFPB witnesses would get his point, which roughly translated was, “Your performance today doesn’t inspire confidence.”

Now to the June 18^th hearing that ended up more interesting than the first.

Prepared to hear bipartisan criticism of the QM rule this time, what was interesting was how members chose to talk at or around the rule, which drew important contrasts. Suffice it to say that Ranking Member Waters doesn’t have party discipline on QM just yet.

Witness testimony could be summarized as complimentary of the CFPB, Director Cordray, and the QM rule followed by a litany of reasons why each witness’ sector of the mortgage industry should be exempted from the QM rule. When witnesses weren’t pleading for their exemption, they offered helpful suggestions on how the rule must be changed and implementation delayed.

Members were listening and agreeing. Not on everything, but on enough.

The Center for Responsible Lending’s Michael Calhoun, the only witness to defend the QM rule, grew more exasperated as bipartisan softballs were lobbed to industry witnesses. When he could get a word in, Mr. Calhoun argued against the industry’s preferred solution, H.R. 1077, the Consumer Mortgage Choice Act, saying the legislation would harm borrowers and allow mortgage fees to double. He went on the offensive against the title insurance industry, particularly lender-affiliated title companies. Mr. Calhoun spoke passionately about the need to ensure low points and fees.

For the most part, it seemed as if no one was listening to Mr. Calhoun. Except, as it turned out, for Rep. David Scott (D-GA), who said—

"Mr. Calhoun earlier made a statement that I totally disagree with and that is on his issue of the need for H.R. 1077. Let me assure you, Mr. Calhoun, we desperately need H.R. 1077."

Rep. Scott, a lead cosponsor of H.R. 1077, had no interest in hearing Mr. Calhoun respond, turning over the remainder of his time to the NAR and MBA witnesses to extol the virtues of his legislation. Mr. Calhoun must have doubled checked his calendar to make sure it wasn’t 2004 again.

Rep. Scott, along with a lot of his colleagues, is dedicating himself to what is to come, not what has gone before.   

 * * *

The members who passed the Dodd Frank Act don't want to go back to the Wild West of originate to distribute, but they like originate to hold in portfolio or originate to distribute with risk retention. Some may have a penchant for the occasional covered bond. You don't get much of these without originations.

This is the CFPB's challenge. Understand a shift has occurred. Understand that Americans are looking to a what's next that's pretty reasonable.