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Mortgage Regulations Approved Under Cordray May Still Be Upheld

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Without a permanent director, the Consumer Financial Protection Bureau has no authority to create or enforce regulations against nonbanks. However, attorneys and industry consultants say several recent mortgage regulations approved by Richard Cordray may still be upheld.

"The uncertainty stems from a court ruling Friday that invalidated President Obama's appointments of three new members to the National Labor Relations Board while the Senate was on its winter break. On that day, Jan. 4, 2012, Obama also named Cordray the director if the CFPB, and many Washington insiders expect that Republicans who opposed Cordray's nomination in the first place will use the NLRB ruling to challenge his appointment," writes American Banker's Kate Berry.

But several lawyers say the recent mortgage rules will not be overturned even if it turns out that Cordray's recess appointment was unconstitutional. Ray Natter, a partner at the law firm Barnett Sivon & Natter, says it is unlikely that a court would invalidate the qualified mortgage rule, which would essentially ban lenders from making the riskiest loans, out of "fear of the chaos that would result."

"The fact that voiding the final QM regulation may cause significant disruption in the mortgage markets will weigh in favor of maintaining the validity of the final QM rule." Natter says.

If the Supreme Court were to overturn the existing qualified mortgage rule, the Treasury secretary could step in and assert the authority to issue a new rule because, under the Dodd-Frank Act, it has the authority to carry out certain CFPB functions.

For the full piece see "For CFPB, Parsing Which Rules Stay, and Which May Go" (may require subscription).

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