CFPB’s Chopra has answers on appraisals, mortgage services, credit scoring

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Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra provided updates on the watchdog’s housing priorities during testimony before the Senate Banking Committee.

Chopra said the CFPB would still monitor mortgage services, as he repeatedly promised, to make sure they weren’t “cutting corners.” The watchdog agency will also work with other federal agencies to intervene in policies and regulations that could impact mortgage lenders and home appraisers.

Mortgage managers have been a particular area of ​​focus for the CFPB under Chopra, but the agency has taken a closer look at them over the past year. In warnings to the sector, the CFPB told mortgage officers it would not give them lenient treatment.

Last June, the CFPB provided managers with detailed guidance to help borrowers navigate the end of forbearance. Last November, the agency, in joint action with federal banking regulators, said it would resume all of its normal oversight of mortgage servicing.

Chopra also drew attention to the past misdeeds of mortgage managers in the mortgage-fueled meltdown – now more than a decade ago – when explaining the CFPB’s current stance on managers. During testimony on Tuesday, Chopra said consumers “can’t choose” their repairer and then they’re “stuck with them.”

“We depend on managers, whether in the context of mortgages, student loans and others, to make sure they’re truthful about borrowers’ options, especially when they’re in trouble,” Chopra said. “The services should not mislead borrowers about alternatives to default, and should in fact help them stay on the repayment path.”

Chopra has in the past raised concerns about algorithmic bias in credit decisions, calling proprietary algorithm models a “black box.”

“So many lenders are quite reliant on algorithms that help predict creditworthiness,” Chopra said. “Many creditors worry that they won’t be able to give a good explanation to borrowers to whom they might have granted unfavorable terms or refused why.”

The CFPB – which oversees non-bank mortgage lenders and managers – is also in talks with the Federal Housing Finance Agency as it plans to update the credit scoring models on which much of the mortgage market is based, Chopra said. FHFA is coming to the end of a multi-year process to determine whether Fannie Mae and Freddie Mac may use credit scoring models that take into account alternative data.

“Yes, we are in discussions with the FHFA about how they should think about medical debt in the mortgage origination process,” Chopra said. “It’s now the number one collection item on people’s credit reports. Many people feel pressured to pay something they don’t owe when applying for a mortgage, job, or apartment.

In April, the CFPB sued the credit bureau Trans Union and one of its executives for allegedly enticing consumers to sign up for credit score monitoring, and for claiming that alternative credit scoring models are widely used in mortgage lending.

TransUnion is one of three credit bureaus, along with Experian and Equifax, whose joint venture VantageScore Solutions is vying for FHFA approval for use by Fannie Mae and Freddie Mac.

Chopra also said the CFPB would enter into joint regulation with other regulators who would carefully review automated valuation models and ensure they account for potential discriminatory effects. Automated valuation models are largely based on past sales, which would include valuations affected by past racist housing policies.

“Congress has authorized regulators to ensure that so-called automated valuation models have adequate controls for safety and soundness for consumers, and whether the models accurately examine potential discriminatory effects,” said Chopra. “That process is ongoing and we are working with regulators on potential proposals that we would jointly put forward.”

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