- The Supreme Court will soon hear a case challenging the CFPB's funding structure.
- CFPB Director Rohit Chopra said an adverse ruling could risk protections for homeowners.
The nation's highest court is about to hear arguments in a case that could have major implications for homeowners.
On October 3, the Supreme Court will take on the case Consumer Financial Protection Bureau v. Community Financial Services Association of America Ltd., which was brought on by payday lenders to challenge the funding structure of the federal watchdog Consumer Financial Protection Bureau. The lenders took issue with the fact that the CFPB is funded by the Federal Reserve, rather than having to rely on annual funding approval from Congress — and the Fifth Circuit ruled last year that the structure is unconstitutional saying Congress did not intend for the CFPB to bypass the annual appropriations process.
Now, the question rests in the hands of the Supreme Court — and CFPB Director Rohit Chopra said during a Monday speech at the Mortgage Collaborative National Conference that an adverse ruling could upend the housing industry and put homeowners at risk.
He said that since the CFPB was formally established in 2011 in the aftermath of the 2008 recession — during which nearly 4 million Americans lost their homes — it implemented standards to ensure borrowers who take on mortgages have the ability to repay them. It also established new rules mandated by Congress that intended to "stop systemic abuse from spreading. Mortgage servicers can't send borrowers on a wild goose chase when they ask for help," Chopra said.
According to CFPB research, the heightened rules on the mortgage industry saved 26,000 families from foreclosure and at least 127,000 more borrowers from delinquency. But the Supreme Court threat to the CFPB's funding structure "would raise significant concerns for the stability of the housing market and the financial system more broadly," Chopra said.
"Reverting to a system without these regulations would create uncertainty for the mortgage industry and the economy," Chopra said. "And even putting aside the questions about existing rules, moving to a world where the future of housing finance oversight is uncertain and unknown, including the number of years we would be living under such mystery, should raise serious shared trepidations among market participants, financial markets, and consumers alike."
He also noted that this is an especially precarious time due to the changes mortgage lenders are experiencing, including housing supply shortages and the student-loan payment resumption that could impact housing demand. The Mortgage Bankers Association, the National Association of Home Builders, and the National Association of Realtors expressed similar sentiments in an amicus brief to the Supreme Court in support of the CFPB.
"The litigation and widespread uncertainty that would likely result from a decision that suddenly called all the CFPB's rules into question would prove devastating to the mortgage market," the groups wrote.
"Any freeze on new loans would devastate consumers' options for buying or selling homes, given that most people need financing to purchase a house," they continued. "Almost 80% of all homebuyers use a loan to purchase a home, and among first-time homebuyers that number jumps as high as 97%. Not only would first time homebuyers be devastated by an inability to obtain a mortgage, but minority communities also would be disproportionately negatively impacted."
The groups also said that the economic impacts of an adverse Supreme Court ruling would be widespread because thousands of Americans who work in the mortgage industry could lose their jobs if the mortgage market crashes.
At this point, it's unclear how broadly the Supreme Court will rule, and if it will strike down the CFPB's funding structure entirely. As Insider previously reported, though, the stakes are high — protections for student-loan borrowers and consumers nationwide could be at risk, and it could open legal challenges into other agencies that do not receive annual funding, like the Federal Reserve.