His investigation of the IRS a humiliating failure, Darrell Issa, the multimillionaire California congressman and Chairman of the House Oversight and Government Reform Committee has not given up his crusade to inflict as much harm as possible on the Obama Administration. This time he has dragged along the Chairman of the House Financial Services Committee, Jeb Hensarling (R-TX) for cover.
Issa’s latest target, in a letter sent to Richard Cordray, finally the official Director of the Consumer Financial Protection Bureau (CFPB), are four former CFPB employees. The charge? That they took advantage of the revolving door between government and the private sector with the hope of financial gain. Or stated another way, they did this despite not being members of Congress.
The details of the accusations made by the two Republican chairs are inside baseball, but as simply as possible, here is the deal. The Dodd-Frank Wall Street Reform and Consumer Protection Act, which mandated the formation of CFPB also set out some standards for mortgage lending. Among those standards is the so-called “Ability to Repay” requirement which simply means that lenders must make a reasonable determination that a borrower can repay the loan for which he/she is applying (otherwise known as Lending 101). Loans that meet this goal are considered “qualified mortgages” (QM) under Dodd-Frank, a designation that gives the lender protection from liability in the event the borrower does ultimately default. CFPB was given the task of outlining the steps lenders had to take in writing a QA, qualifying for the legal protections and increasing the loan’s value and saleability on the secondary market.
Former CFPB Deputy Director Raj Date, worked on the QA rule which went through several revisions, each of which carried a period of public comment. Industry stakeholders, consumer groups, and consumers made many comments and each time CFPB went back to the drawing board. When the final rule was issued last January the process of developing it and to a lesser extent the rule itself were pretty widely praised by those having an interest in it.
Less than a month after the rule was published Date left CFPB mouthing the usual about spending time with his family. At some point three other senior officers, Gary Reeder, Chris Haspel, and Mitch Hochburg, also resigned. Two months after leaving the Bureau Date incorporated Fenway Summer LLC, an investment firm and, in due course, hired the other three men. News stories have said that Fenway’s business model is focused on those who do not meet the standards for qualified mortgages.
Maybe Fenway and Date’s intent in founding it don’t pass the smell test. However neither does the Issa/Hensarling letter which requests a lot of documentation from CFPB and is obviously the opening shot in another Issa witch hunt. If Issa is able to push this new investigation onto the front pages here is what the media won’t tell its readers.
1. The standards for Ability-to-Repay were laid out in Dodd-Frank. CFPB was charged only with formulating the regulations for administering them.
2. The process of formulating the regulations was very transparent as industry leaders have said. There was ample time for input and little criticism of the final product.
3. Mr. Hensarling’s committee has been holding hearing after hearing decrying the monopoly that government has on the housing finance system and the lack of private lending in that system. What Date seems poised to do is to assist the private sector to reenter one aspect of that market.
4. Congress itself pioneered the practice of passing laws then going to work for those affected by them, expressly to help them circumvent those laws. Anything Date is planning – at least as far as outlined in the Issa/Hensarling letter – falls far short of that.
But beyond the cluelessness of 1 -3 and the hubris of 4, the real smelly thing about the letter is its own obvious agenda. The committee chairmen (and the three Republican subcommittee chairs who also signed it) could give a fig about the four ex-employees. What they really want is control over CFPB. Hensarling and Issa have been nearly apocalyptic over the very existence of the agency – Hensarling even refusing to allow Cordray to testify before his committee because he wasn’t the confirmed head of the Bureau, a confirmation Senate Republicans blocked for two years. But one of the final paragraphs in the letter should tell you everything you need to know about the Issa/Hensarling agenda:
“Although the CFPB is now two years old it remains “something of a mystery to many market participants as it ramps of operations’ (quoting the Wall Street Journal). This lack of transparency has apparently incentivized Mr. Date and other CFPB alumni to create a cottage industry unique to the Bureau’s regulatory agenda. Simply put, it appears that former CFPB employees are now offering financial products in a market sector created by the very rules they were in a position to influence while working in senior leadership positions at the CFPB. This conduct raises serious questions about the integrity of the CFPB’ s rulemaking process and the conduct of some of its most senior former officials. We are deeply concerned that this close relationship between the CFPB and its former officials ultimately could harm consumers.”
Director Cordray was finally confirmed only because of the Senate’s compromise last month to avoid the “nuclear option.” His seat at the table – that there even is a table – are something Republicans are simply not going to tolerate. One man’s decision, rightly or wrongly, to fill a gap he perceived in the system, is going to escalate to another major battle over the structure, funding, and very existence of the Consumer Financial Protection Bureau.