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July 26th, 2011

Is the CFPB already helping banks not borrowers?

by Peter Miller


Capitol BuildingThe newly-formed Consumer Financial Protection Bureau (CFPB) has just come out with a ruling that will bind state banks more closely to the federal system.

This may not be the best strategy for a consumer agency, given that state rules are sometimes tougher than federal standards.

The Alternative Mortgage Transaction Parity Act (AMTPA) was passed in 1982 for a very strange reason: banks wanted the right to make adjustable-rate mortgages even when state rules said they couldn’t.

Now the CFPB has come out with a new rule to beef up the AMTPA:

Some lenders are chartered or licensed by states, while others operate under federal charters. For years, state lenders have been able to rely on a federal law called the Alternative Mortgage Transaction Parity Act (or AMTPA, for short) to make variable rate loans and other “alternative” mortgages, regardless of state law restrictions.

States have no say

In other words, state lenders can ignore state rules:

Congress passed AMTPA to allow state lenders to make alternative mortgages on the same footing as their federally chartered competitors.  

Well, yes, but this explanation misses the point:

State lawmakers did NOT want state-regulated banks to have the same sloppy, slippery rules that were followed by federally-regulated banks. Otherwise they would have allowed such lending practices. They didn’t want state banks to offer risky loans. They wanted something better, something that would hold down mortgage rates by holding down risk.

What loans, specifically, did AMTPA allow?

ARMs (a fairly-new concept in 1982) as well as loans with balloon payments and interest-only loans were allowed. In other words, loans which could generate higher average mortgage rates, especially if inflation hit.

Such financing is in the consumer’s interest?

Such loans are less risky than fixed-rate financing?

States shouldn’t have the right to limit or ban such financing from the local banks they supposedly license and regulate?

Then why do we have state governments?

According to the CFPB:

Without this interim rule implementing the AMTPA amendments, state lenders would lose their ability–overnight–to rely on AMTPA to make alternative mortgages. That could hurt not just state lenders that rely on AMTPA, some of which may be small rural banks. It could also hurt consumers by reducing their access to mortgages from those lenders. And, all of this harm would occur quite suddenly. 

Why did the CFPB propose this rule?

Why the CFPB felt it was necessary to propose such a rule is unclear. Was there a consumer group begging for the opportunity to borrow more risky terms? Or have people seen enough of such financing with the mortgage meltdown? Isn’t there something the CFPB could undertake, anything, that might be more in the public interest and more timely?

Now it may be that the CFPB will help those small rural banks it claims are so endangered, but has it helped consumers–you know, the folks a “consumer” agency is supposed to represent?

The banks don’t need any more help, borrowers do

Truth is that banks don’t need more help from Washington. They have already been bailed out, they can already borrow funds at just about 0 percent and federal regulation is a joke.

The CFPB is a great idea, but Washington has no need for still another regulator owned by the banks. This is a woeful decision, one which suggests that the CFPB will do little to create a level playing field for banks and borrowers.

One Response to “Is the CFPB already helping banks not borrowers?”

  1. Originations 7/27: Is CFPB Already Helping Banks, Not Borrowers? | The Basis Point Says: July 27th, 2011 at 2:33 am

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