Liberty, housing, private citizens

Since its inception, the Consumer Financial Protection Bureau ( has had many advocates and many critics.  While many point to the CFPB’s staunch protection of consumers, some have argued that the independent agency has too much power with little oversight.  And this week’s opinion from the United States Court of Appeals in the case of PHH Corp v. Consumer Financial Protection Bureau seems to side with CFPB’s detractors – and highlights liberty, housing, private citizens.

As you know, the CFPB was created in the aftermath of the financial crisis by the passing of Dodd-Frank in 2010.  Dodd-Frank (also known as the Dodd–Frank Wall Street Reform and Consumer Protection Act) came at a time when politicians wanted to reign in financial institutions and businesses.  In order to carry out financial reform, Dodd-Frank created a number of oversight boards and agencies in an expansive piece of legislation that covered many areas spelled out in over 2,000 pages.  And even in its behemoth size, Dodd-Frank left much of the reform regulations to be written by agencies and its unelected officials – including the CFPB.

The CFPB has issued many new rules and have fined many banks and lenders.  Some of the new rules have fundamentally changed the relationship between the consumer and the bank.  For example, the TRID (TILA-RESPA Integrated Disclosure) rule that went into effect this year which not only changed how settlements are conducted but can levy stiff a penalty for each violation.

The case PHH Corp v. Consumer Financial Protection Bureau, appeared as if a seemingly “bad” mortgage lender was pushing back against fines and penalties for doing wrong.  (PHH Corp was fined $108 million by the CFPB for mortgage re-insurance deals with company affiliates, even though it claimed to have followed HUD’s previous rule of paying a reasonable market rate.)  But there’s more to this story, and it highlights exactly the what the CFPB’s critics have complained about – the CFPB’s independence from oversight and guidance.  The case is about the CFPB’s authority to change the rule and retroactively apply it to PHH Corp.

Judge Kavanaugh wrote: “This is a case about executive power and individual liberty. The U.S. Government’s executive power to enforce federal law against private citizens – for example, to bring criminal prosecutions and civil enforcement actions – is essential to societal order and progress, but simultaneously a grave threat to individual liberty.”

He continued to say that “…the Director of the CFPB possesses enormous power over American business, American consumers, and the overall U.S. economy. The Director unilaterally enforces 19 federal consumer protection statutes, covering everything from home finance to student loans to credit cards to banking practices. The Director alone decides what rules to issue; how to enforce, when to enforce, and against whom to enforce the law; and what sanctions and penalties to impose on violators of the lawThat combination of power that is massive in scope, concentrated in a single person, and unaccountable to the President triggers the important constitutional question at issue in this case.”

The result is that the CFPB will continue to operate and go after bad actors in the financial world.  However, the recent appellate ruling will likely change the scope and focus of its operations, as the CFPB will be under the “ultimate supervision and direction of the President.”  This case and the opinions of the Court can be found here (

By Dan Krell
Copyright © 2016

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

FHFA takes Fannie and Freddie: Government begins restructuring troubled mortgage giants

by Dan Krell

If you haven’t yet heard, the newly created Federal Housing Finance Agency (FHFA) wasted little time in pursuing its regulatory authority over Fannie Mae and Freddie Mac by taking over as conservator. The agency was established as the new regulatory agency for Government Sponsored Enterprises (GSE) when President Bush signed the Housing and Economic Recovery Act of 2008 on July 30th. The takeover is a coordinated effort between the FHFA, the United States Treasury Department and the Federal Reserve.

In a statement made on Sunday, FHFA secretary James Lockhart outlined the reasons for the takeover of Fannie Mae and Freddie Mac as well as the goals of the conservatorship. (The Secretary’s statement can be found at: Secretary Lockhart stressed the importance of Fannie Mae’s and Freddie Mac’s role in the housing industry. However, the FHFA felt it was necessary to take action because of Fannie and Freddie’s ongoing capitalization problems, poor financial performance and deteriorated market conditions.

Treasury Secretary Henry Paulson also underscored the importance of Fannie and Freddie’s survival (the Secretary’s statement can be seen at Secretary Paulson stated that the failure of Fannie Mae and Freddie Mac would cause great turmoil in local and global markets. The turmoil would in turn negatively impact everyone personally, reducing savings and restricting credit (all forms of credit would be affected).

Due to the fragility and uncertainty of Fannie and Freddie in recent weeks, Treasury Secretary Paulson stated that the risk of funneling money to these institutions “in their current form” was not in the best interest of the tax payers. As the FHFA takes over operations in Fannie and Freddie, the role of the U.S. Treasury will be to ensure that Fannie and Freddie maintain a positive net worth through preferred stock purchases. By maintaining a positive net worth, Fannie and Freddie dodge the bullet of receivership (which could trigger a global financial meltdown).

The Treasury’s second role will be to purchase mortgage backed securities (MBS) from Fannie and Freddie. Although the MBS purchases will be temporary, it is anticipated that the special MBS purchases will increase mortgage availability and affordability.

Additionally, special credit facilities will be made available to the FHFA entities (which include Fannie Mae and Freddie as well as the twelve Federal Home Loan Banks) to sustain their liquidity. Secretary Lockhart stated that the Federal Home Loan Banks will most likely not use the recently made available facilities as they have “preformed well over the last year.”

The conservatorship is intended to be temporary; there is no timeline for transition. However, as Fannie and Freddie are required to reduce their mortgage portfolios starting in 2010, it is anticipated the new model will allow for a more streamlined and profitable organization at both Fannie Mae and Freddie Mac.

Although many agree that the takeover will positively affect interest rates temporarily, modestly lowered interest rates will not be enough to fix the real estate problem. The real story (that will evolve in ensuing months) will be Fannie and Freddie’s encouragement and support of banks to modify delinquent loans rather than foreclosing, which will play a role in the stabilization of home values and ultimately the real estate market.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 8, 2008. Copyright © 2008 Dan Krell.