President Trump has yet to formally name Kathy Kraninger as his choice to head the Consumer Financial Protection Bureau, but her nomination is already in trouble — and that may be just fine with the White House.
Kraninger has no experience in consumer finance and is currently Mick Mulvaney’s deputy at the Office of Management and Budget, two points likely to guarantee opposition from Senate Democrats and a grueling confirmation battle that will likely stretch out for months.
“The Democrats will certainly strongly oppose Kraninger’s nomination,” said Alan Kaplinsky, co-practice leader at Ballard Spahr’s Consumer Financial Services Group.
With Sen. John McCain, R-Ariz., still out on extended medical leave, Senate Republicans have just 50 votes, giving them no room to maneuver if Democrats stay united. If even one GOP senator opposes Kraninger, her nomination will fail.
“I’ll be very surprised if the Republicans push" her nomination, Kaplinsky said. “While the Republicans still have the ability to get her confirmed, I don’t see them picking a fight right now before the midterm elections. They will reassess things after the elections.”
But that risk appears to be part of the White House plan, according to industry observers, and ultimately designed to extend Mulvaney’s tenure as acting CFPB director for as long as possible.
“Either Ms. Kraninger is confirmed and she continues the reforms begun by Mulvaney for a five-year term, or her nomination is defeated and Mulvaney continues the reforms himself until well into next year,” said Ben Olson, a partner at Buckley Sandler and a former deputy assistant director at the CFPB. “The longer the nomination process lasts, the longer the Vacancies Act allows Mulvaney to stay.”
The White House may even be secretly hoping Kraninger’s nomination is defeated.
WASHINGTON — The Trump administration proposed Thursday to rip off the Band-Aid from Fannie Mae and Freddie Mac, ending conservatorship of the mortgage giants and leaving them to raise their own capital in the private market. But the plan raises a whole host of questions and left many wondering whether it could advance.
Included as part of an Office of Management and Budget plan for reorganizing the government, the housing finance reform proposal would appear to require both legislative and administrative action, such as creating an explicit government guarantee for mortgage-backed securities for "limited, exigent circumstances."
"There are large hurdles on both sides to getting this passed from a vote count perspective,” said Rob Zimmer, head of external communications for the Community Mortgage Lenders of America.
The plan calls for reducing the footprint of the government-sponsored enterprises in the housing market. Fannie and Freddie would be converted into "fully private entities." The housing giants could access the explicit federal guarantee, but so could other market entrants.
Both GSEs would lose their federal charters. A federal regulator would oversee the "fully privatized GSEs," approve the creation of new guarantors and "develop a regulatory environment that is conducive to ... competition."
"If the GSEs lost some of the benefits that have led them to dominate the market, this would enable other private companies to begin competing in this space," the OMB plan said. "The regulator would also ensure fair access to the secondary market for all market participants, including community financial institutions and small lenders."
The Consumer Financial Protection Bureau fired all 25 members of the agency's Consumer Advisory Board during a conference call Wednesday, saying it wanted to bring in more diverse views.
Anthony Welcher, a political appointee and the CFPB's policy advisory for external affairs, told consumer advisory members during a brief call that the agency would be modifying how the board works.
"We've decided we're going to start the advisory groups with new membership, to bring in these new perspectives and new dialogue," Welcher said, according to a recording of the call obtained by American Banker. "We want more diverse voices and we want to bring people in from larger-scale organizations, larger-scale opportunities in the communities to hear about processes we may be going through."
The CFPB sent an email to the consumer board members stating that it would continue to convene a consumer advisory board, which is mandated by the Dodd-Frank Act, but would reconstitute the group with "new, smaller memberships."
"Smaller memberships will ensure streamlined discussions about the Bureau’s policy priorities and needs in a productive manner," the email stated.
The CFPB said the board's members and those of two other agency boards, the Community Bank Advisory Board and the Credit Union Advisory Board, were terminated and that they were not allowed to re-apply.
Federal law enforcement authorities have arrested 74 people in this country and abroad, accusing them of participating in a wire fraud scam whose victims included real estate attorneys and settlement service providers.
The government was able to seize $2.4 million of alleged ill-gotten gains as well as disrupt and recover $14 million in fraudulent wire transfers as part of Operation Wire, an operation undertaken by the Department of Justice, the Department of Homeland Security, the Department of the Treasury and the U.S. Postal Inspection Service.
But that is just a drop in the bucket in the dollars lost to what the federal government classifies as business email compromise schemes and its variant, email account compromise. Victims have reported over $3.7 billion stolen since the Internet Crime Complaint Center started keeping track of these frauds in late 2013.
Of the 74-people arrested, 42 were in the U.S., 29 were in Nigeria and one each in Canada, Mauritius and Poland.
"I want to thank the FBI, nearly a dozen U.S. Attorneys' Offices, the Secret Service, Postal Inspection Services, Homeland Security Investigations, the Treasury Department, our partners in Nigeria, Poland, Canada, Mauritius, Indonesia and Malaysia, and our state and local law enforcement partners for all of their hard work," said U.S. Attorney General Jeff Sessions in a press release. "We will continue to go on offense against fraudsters so that the American people can have safety and peace of mind."
There were 23 individuals charged in the Southern District of Florida, including eight people in an indictment unsealed June 4 for laundering $5 million from a Seattle corporation, various title companies and a law firm, the Department of Justice press release said. The indictment does not contain the victims' names.
The ability-to-repay standard is responsible for the reduction in loan application defects over the past four-plus years, according to First American Financial Corp.
For April, the First American Loan Application Defect Index was 82, unchanged from March, but up from 81 in April 2017. However, the index is down 19.6% from October 2013, when it was at 102, before the ATR rules went into effect in January 2014. The index measures the frequency of defects, fraud and misrepresentations in mortgage applications.
The Consumer Financial Protection Bureau is considering changes to the ATR and qualified mortgage rules that would loosen those standards.
"Since the ability-to-repay rules were issued, there has been a precipitous and significant decline in income-specific mortgage loan application misrepresentation, defect and fraud risk. In fact, our income-specific metric within the Loan Application Defect Index reached its peak in December 2012, one month before the rules were issued." said First American's Chief Economist Mark Fleming in a press release.
"By September 2013, nine months later, the income-specific defect risk metric declined 33%, as lenders implemented new loan manufacturing and underwriting practices in preparation for the effective start of the rule in January 2014. Since then, income-specific defect and fraud risk has continued to decline and is currently 70% below its peak prior to publication of the ability-to-repay rules."
For April, the income risk index was at 39, up from 38 in March, its all-time low. In December 2012, this component was at 131. In October 2013, when the overall index was at its all-time high, the income risk index was 88.
"The rules have reduced the incentive to fraudulently misrepresent one's income, a benefit to lenders," said Fleming. "The ability-to-repay standards are essentially the mortgage fraud risk prevention equivalent of using a steering wheel lock to dissuade potential car thieves."
The refinance component of the index was at 71 for April, up from 70 in March and 66 in April 2017. Meanwhile for purchases, April's index was 87, compared with 89 in March and 89 in April 2017.