TheMReport — News and strategies for the evolving mortgage marketplace.
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60 | TH E M R EP O RT O R I G I NAT I O N S E R V I C I N G A NA LY T I C S S E C O N DA R Y M A R K E T SECONDARY MARKET THE LATEST CFPB Director: Mortgage Credit is "Still Too Tight, In My View" The foreclosure crisis created an "overreaction" in the market, according to Cordray, who encourages lenders to loosen credit standards. C onsumer Financial Pro- tection Bureau (CFPB) Director Richard Cordray called atten- tion to the mortgage industry, particularly lenders, in a speech in March, during which he high- lighted some of the progress and pitfalls the housing market faces. An Urban Institute report re- cently confirmed Cordray's remarks by finding that between 2009 and 2014, 5.2 million bor- rowers with less-than-pristine credit were unable to get a mort- gage loan due to tight lending. The data showed that between 2009 and 2013, 4 million loans could have been originated if credit standards were like 2001's levels. On top of this total, an ad - ditional 1.2 million borrowers were unable to get a mortgage loan. "A tight credit box means that fewer families will become homeowners at an opportune point in the housing market cycle, depriving them of a critical wealth-building opportunity," Urban Institute said. "It slows the housing market recovery by limiting the pool of potential borrowers. Ultimately, excessively tight credit hinders the economy, as it slows all the associated eco - nomic activity that comes with home buying, such as furniture purchases, landscaping, and renovations." In his speech, Cordray stat - ed that the millennial generation is beginning to welcome home- ownership despite the stereotype surrounding this generation, but as they are, they are met with the issue of tightening credit. "Credit is still too tight, at least in my view, but we can now look in the rear-view mir - ror and see that some of the un- due fears people had about legal liability under the QM rule, or market paralysis due to stream- lining the mortgage disclosure forms, can be put in healthier perspective," Cordray explained. "There is ample opportunity in the mortgage market as it continues to heal, and you should be doing what you do best: serv - ing your customers through great deals and great customer service. Homeownership still remains the most effective engine of wealth accumulation for the American middle class, and you are the ones who are making that happen and rebuilding a key marketplace that failed this country so brutally less than a decade ago." Despite the bleak credit pic - ture, mortgage lending prac- tices have improved since the financial crisis, Cordray said in his speech. "The market crash itself led to many changes, with bad ac - tors and bad practices no longer feasible in a marketplace that had all-too-belatedly exposed the risks inherent in irresponsible and often predatory lending. Indeed, if anything, the market meltdown produced an over - reaction, marked by very tight credit and historically low levels of consumer demand and avail- able supply," he said. "For those of us engaged in the important work of protecting consumers, these developments posed a very tricky task in implementing reforms. We were well aware of the concerns many had raised that the cost of protecting con - sumers would constrict the avail- ability of credit and even drive many financial service providers out of business altogether. Fannie Mae, Freddie Mac Deemed Private Companies by 9th Circuit Court THE NINTH CIRCUIT COURT RULING COULD HAVE MAJOR IMPLICATIONS FOR OTHER PENDING LAWSUITS CHALLENGING THE SWEEPING OF GSE PROFITS INTO THE TREASURY. T he Ninth Circuit Court of Appeals recently af- firmed a district court's decision that Fannie Mae and Freddie Mac are private companies, albeit companies chartered or sponsored by the federal government, and not "of- ficers, employees, or agents of the federal government for purposes of the False Claims Act." In upholding the lower court's decision in the case of United States of America ex rel. Adams v. Aurora Loan Servs., Inc., the Ninth Circuit Court ruling stated that the Federal Housing Finance Agency's (FHFA) conservatorship of the Enterprises does not "trans - form Fannie Mae and Freddie Mac into federal instrumentalities. We agree that the FHFA has 'all the rights, titles, powers and privi- leges of' Fannie Mae and Freddie Mac. However, this places FHFA in the shoes of Fannie Mae and Freddie Mac, and gives the FHFA their rights and duties, not the other way around." The ruling by the Ninth Circuit Court could have major implications for the lawsuits currently pending that challenge the legality of the sweeping of all GSE profits into Treasury, commonly known as the "Net Worth Sweep." Myron Steele, an attorney representing the plaintiff in one such lawsuit (Jacobs v. Federal Housing Finance Agency), wrote a letter to Judge Gregory Sleet of the U.S. District Court for the District of Delaware, where the Jacobs case is pending, and informed the judge of the Ninth Circuit's ruling. Steele contended the Ninth Circuit ruling means as private companies, the GSEs are subject to Delaware state