WASHINGTON — Raj Date has gone from being a banker skeptical of regulation to being a key leader of one of the most powerful banking regulators: the Consumer Financial Protection Bureau.
After holding positions at Capital One and Deutsche Bank, and founding a financial-policy think tank, his two-year stint at the bureau has been a crash course in navigating government bureaucracy and building an entire agency from nothing.
Date, who steps down from the CFPB on Thursday, was a key advisor to CFPB architect Elizabeth Warren. After her departure, he effectively ran the agency on an interim basis before Richard Cordray's still-controversial recess appointment as the first official director a year ago. As Cordray's No. 2, Date has had a central role in the development of CFPB regulations such as defining a borrower's ability to repay and what constitutes a Qualified Mortgage.
In an exit interview with American Banker, which occurred prior to a court ruling that called into question Cordray's appointment, Date rejected industry claims that the effect of the bureau's mortgage rules will be fewer lenders, said the agency's priorities are largely unchanged since its creation and discussed how he acclimated to being in the government.
Q: Do you have a response to lenders who say the combination of QM, servicing standards and other mortgage regulations could squeeze them from the market?
Fundamentally, the challenge in the mortgage business before and throughout the crisis was that firms had made really bad credit decisions. The resulting calamity is one that we are still digging out of. The fact that anyone would think it possible to be in this business without considering a borrower's ability to repay, to me, that's astonishing. So, the new rules aren't some new terrible hurdle to have to surpass. I mean, last time I checked, if you're going to lend somebody money, you should probably be interested in that person's ability to pay you back. That's the sensible notion that's behind this.
What is a good example in the QM rule of specific industry feedback leading to balance in the rule?
This is not an area where industry and consumer interests are somehow antagonistic to each other. Lenders and certainly, investors, are better off if mortgage loans are made in transparent ways with underwriting practices that everyone understands and that are logical. Borrowers are also better off if there are underwriting criteria that are transparent and logical. So it isn't so much that we're trying to find some magical sweet spot between antagonistic interests. I just think that common-sense reforms as embodied in the ability to repay rule actually do benefit everybody. In terms of the process, we continually sought the input of people across a range of perspectives. We have been open and really listened to what people have to say. Through this process we were able to incorporate much of what we heard to make sure the final product was as good as we could make it.
What aspect of the mortgage industry during the crisis showed the most need for regulation from an agency like the CFPB?
At that moment in time it was very difficult to escape the conclusion that the residential mortgage business in the U.S. had managed to do almost everything wrong. So borrowers were getting into loans that they too often didn't understand or couldn't afford. You had some originators selling loans on basically a cash basis, keeping no skin in the game themselves and therefore losing any real incentive for underwriting around the long-term risk of those loans. You had investors in the capital markets with either lack of willingness or lack of ability to actually gauge risk and return of the securities they were buying.
Has the bureau changed any of its strategy or key principles since its 2011 launch?
The basic outlook on the role of the Bureau in ensuring sensible safeguards within the industry is the same now as the day that the President signed Dodd-Frank. It's the same perspective that Elizabeth Warren brought to the place. … An efficient marketplace is going to work if and only if it's fair: Do people play by the same set of rules or don't they? It's going to work if it's transparent: Do buyers and sellers both understand basically the deal they are entering into or not? And it's one where incentives actually make sense: Do you get rewarded for making good decisions or does it not really matter if you make a good decision or a bad one? That's been the underpinning of everything we've done.
Did you ever fear the bureau wasn't going to make its deadlines for completing rules?
It was stressful throughout. It's difficult to do this. We've adopted a problem-solving approach here that is empirically rigorous, grounded in the marketplace, and totally transparent. We get input from consumer groups, community groups, financial institutions and their trade associations. To be really disciplined and really inclusive and collaborative is hard to do if you set yourself on a tight timetable. And in my opinion, the only way to make sure you do that well is to be iterative, have a fast cycle time, come up with a first cut answer, and then make things further and further and further refined. It's through that approach that we end up with better answers.
What's been the biggest challenge of your job?
For me personally, it was making sure that we were simultaneously delivering tangible value on tight timelines and, at the same exact time, that we were building the framework, the bone structure, of an institution that was going to endure over time and really be great. Frankly, I used to be really cynical about the notion of institutional values. But it actually is a real thing and it actually does matter because it guides not just the work that you do, but how you do it.
To what extent has this been on-the-job training?
I had no idea, really, how it is that the apparatus of Washington — as between the Hill, the executive branch, and the independent agencies — how things actually worked day to day. We were lucky enough to be able to hire people who did. There are a certain set of requirements you have to live under within the government system. How do you hire people? How do you work to government standards for information security in IT? How do you buy things? We were very lucky to have help in the early going from Treasury and then to really staff up with real experts in those fields. And believe me, I knew nothing about any of those things before I got here.
What do you wish you would have done differently?
I would have moved my family down here earlier. It seems like a silly and trivial thing but we were running very hard here in the early going. I was commuting from New York City for nine months. That's actually very difficult to do. You meet people who do it long term and I honestly have no idea how they do it. But it is pretty high up there on the misery quota.