Unintended Consequences of Standing Down the CFPB
The DOGE approach to "reforming" government agencies is a sledgehammer. That's because it doesn't have the knowledge or patience to use a scalpel. But there are real costs to using a sledgehammer in terms of unintended consequences that are going to blow up on all consumers, be they MAGA supporters, Democrats, or Whigs. Let me highlight just one.
The Dodd-Frank Act, enacted in response to the 2008 financial crisis, prohibits lenders from making mortgage loans without verifying the borrower's ability to repay. The CFPB has a regulatory safeharbor, however, known as the Qualified Mortgage Rule. If a mortgage is a Qualified Mortgage, it is deemed to satisfy the ability-to-repay requirement. To be a Qualified Mortgage, a mortgage loan must have an interest rate that does not exceed the "Average Prime Offer Rate" by more than a specified level. Sounds go so far, right? Basically, if a mortgage isn't priced too much higher than the average mortgage rate, we're going to assume that it's not problematic.
But here's the catch: the "Average Prime Offer Rate" is a number determined by the CFPB. It isn't self-executing. Instead, CFPB personnel need to collect and analyze data and then periodically publish the Average Prime Offer Rate. If CFPB personnel are not permitted to work, the Average Prime Offer Rate will not update. (You can thank the Trump 1.0 CFPB for adopting this methodology instead of a debt-to-income ratio...) In a falling interest rate environment, that won't matter much. But if rates rise, then the Average Prime Offer Rate will be stuck at too low of a level, so more mortgages will fall out of the Qualified Mortgage safe harbor, thereby exposing lenders to legal risk. What could cause rates to rise? Well, tariffs for one thing, particularly if the Fed is concerned about keeping inflation in check. Hmmmm.
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