Rajeev Date had the unenviable job of filling a speaking
slot originally assigned to Elizabeth Warren to discuss the creation of the
Consumer Financial Protection Bureau. He is currently the Special Advisor to
the Secretary of the Treasury on the Consumer Protection Bureau. Prior to that,
he worked for over a decade in the financial services industry, including
stints at Capital One Financial and Deutsche Bank.
Mr. Date described the similarities between his job and
that of bankruptcy lawyers pointing out that both deal with people getting
wiped out because of something financial and both seek to help consumers.
The Consumer Financial Protection Bureau was a signature
part of the Dodd-Frank legislation. He stated that its goal was making consumer
financial markets work. Before Dodd-Frank, consumer protection functions were
assigned to seven agencies which had other responsibilities as well.
He sketched out some recent history to show the need for
the Bureau. He said that consumer debt exploded during the years before the
financial crisis. He said that it "covered everything, big ticket, small
ticket, secured unsecured. Everything grew and everything grew fast." From
1999-2007, household debt nearly tripled. He cited college kids with credit
cards, home mortgages with teaser rates and people exhausting their savings on
high cost debt as emblematic of the period. Mr. Date said that consumers were
signing up for "things they didn't understand."
Mr. Date noted that the mortgage industry was at the
epicenter of the financial crisis. While lenders usually have incentives to
ensure borrowers can pay them back, the mortgage industry was different.
Because the brokers and banks that originated loans were compensated up front,
risk and reward were delinked.
He also said that there was a breakdown in the market. Because
originators could shop for the most favorable legal regime, they did so.
Additionally, there were problems with transparency. He
defined transparency as both parties understanding the terms of the deal and
talking about the same deal. Mr. Date said that transparency was absent during
the years leading up to the financial crisis. The fastest growing products were
things that were hard to understand. In order to gauge the risk involved in
some financial products, it was necessary to have extensive knowledge of how
the rate caps worked and interest rate history. He said that "problems of
transparency continue today. Borrowers deserve to know what they are signing up
Mr. Date was enthusiastic about the prospect of starting
a new agency from the ground up. He quoted Steve Jobs for the proposition that
"the only way to great work is to love what you do." He described his challenge
as creating new perspectives, creating a new structure and recruiting new
Although the CFPB is only a few months old and lacks an
Executive Director, it has grown to 690 employees, has begun taking consumer
complaints, started education programs and has released examination guidelines.
Notwithstanding the lack of an Executive Director, the authority to carry out
the Bureau's powers has transferred to the Secretary of the Treasury.
He pointed out that from 2001-2007, the volume of unusual
mortgages exploded dramatically. He described one of the worst products offered
as a mortgage with a one month teaser rate. He said that while the Bureau is
working to clean up new originations, there are already $10 trillion in
mortgages out there.
Mr. Date answered several questions related to mortgage
servicing. He said that when he was in the financial services business, he
would walk the floors of collection operations for automobile lenders and
credit card lenders to evaluate whether to purchase the business. He said that
they understood that there were some people who wouldn't pay and planned for
On the other hand, income in the mortgage servicing
industry is largely fixed regardless of whether the loan performs or does not.
When a loan is performing, the cost to service the loan is less than the fees
paid. However, when a loan is not performing, the servicer's costs exceed their
revenue. As a result, "the incentives don't line up" for mortgage servicers to
work with borrowers in default.
He also pointed out a disparity in that mortgage
servicers can "fire" their borrowers by selling the portfolio to a new
servicer, while borrower cannot fire their servicer.
The CFPB has released its manual for mortgage servicer
examinations. Mr. Date said that in the past, examinations of mortgage
servicers were neglected because these operations did not affect the "safety
and soundness" of the financial institution. He said that the servicing manual
does two things: it sets standards for consistency and lets servicers know what
Three different judges asked questions relating to home
mortgage modifications. One judge spoke about debtors who submitted everything
they were asked to and didn't hear back for months only to be told their
information had been lost. Another judge asked, "What do I do? What do I tell
Mr. Date pointed out that mortgage brokers were good at
holding consumers' hands during the application process. However, no one is
holding their hand in the modification process. He pointed out that the CFPB
will put consumers in touch with HUD-approved housing counselors. This
information is available at consumerfinance.gov.
He also said that enforcement was a tool available to the
Bureau. He said that the Bureau would choose the right areas for investigation
and bring cases when we need to. He said, "There are bad guys. If you don't
know who they are, you may be one yourself."
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