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Consumer finance chief: Mortgage rules help banks

Emery p. Dalesio, AP Business Writer

RALEIGH, N.C. (AP) -- New consumer protections taking effect in January are forcing mortgage lenders to change how they do business, but the head of the federal government's new consumer finance watchdog agency said Wednesday it'll give responsible lenders an advantage.

The vast majority of mortgages starting next year will have to meet rules set by the Consumer Financial Protection Bureau requiring lenders to look into a consumer's financial information and be sure they can afford to repay. The rules will extend to less-regulated lenders who had easier standards than banks and allowed mortgages that got into trouble during the financial crisis, bureau director Richard Cordray told lenders at the American Mortgage Conference.

"One of the benefits to you of this new law and this new agency is that we are examining your non-bank competitors. They are being forced to come into a new compliance regime that for many of them is quite unfamiliar," he said. The rules are "designed to end many irresponsible lending practices by making sure consumers are getting mortgages they can actually afford to pay back — a novel concept, I know."

The bureau is responsible for protecting consumers from abuses by financial firms including mortgage companies, private student lenders and payday lenders under the 2010 overhaul of financial laws.

Lenders complain that regulations required by the Dodd-Frank law are complex and labor-intensive, with rules and reporting from multiple financial regulators, North Carolina Bankers Association President Thad Woodard said.

"It takes a lot for an organization to be able to react and change and implement change. It doesn't matter what it is," said Rollie Tillman, who directs mortgage lending operations at Capital Bank, which operates more than 160 branches in Florida, North Carolina, South Carolina, Tennessee and Virginia. In the mortgage industry "there are lots of regulations and lots of shades of grey, where one steps on the foot of another one."

Tom Vartanian, a Washington banking lawyer and former regulator at the Comptroller of the Currency during the Reagan Administration, said the CFPB's rules create new risks that could push out some lenders.

Lending rules formerly required disclosing to borrowers what a mortgage contract said and the fees consumers promised to pay. The new origination rules require lenders to check into whether the loan is suitable, giving borrowers a chance to argue in court they never should have been loaned a mortgage that later soured, Vartanian said. That increases the chances lenders could lose their loan money and face lawsuits for other damages, he said.

"I think what these rules have done is they've basically changed the risk analysis for going forward into the mortgage business," he said Monday. "I haven't said you can't be in the mortgage business. I've just said there's new risks, you've got to evaluate them."

Cordray seemed to have similar arguments in mind when he told industry leaders the CFPB's rules provide effective legal protections against debt challenges.

"You should keep this perspective in mind if you hear people dreaming up hypothetical factual disputes in an effort to sow anxiety about potential litigation," he said.


Emery Dalesio can be reached at https://twitter.com/emerydalesio