Amid the constant regulatory ambiguity that has become commonplace for lenders since 2011, they have also received two distinctly different messages relating to bond loans offered by down payment assistance programs.
On one hand, regulators and industry critics have encouraged lenders to participate in programs which benefit the very borrowers for whom the majority of the protections in the Dodd-Frank Act were intended to support.
Yet, almost every general regulation passed by the Consumer Financial Protection Bureau has exponentially increased the difficulty in making these loans. For instance, the loan officer compensation laws make bond loans inherently unprofitable. The TILA-RESPA Integrated Disclosure rules create even more barriers due to the possibility of tolerance violations and timing complications.
Now, the Office of the Inspector General for the Department of Housing and Urban Development is openly and publicly disagreeing with both Federal Housing Administration and HUD's own Deputy Secretary as to whether such bond loans are permissible if they rely on premium pricing to fund the housing assistance.
Specifically, FHA explicitly states that such lending is lawful, but HUD's OIG is advising lenders of an opposing view which it intends to rely upon and enforce in connection with its audits. HUD's OIG is going so far as to bring the matter to Congress for resolution. In the meantime, however, lenders are essentially making such loans at their own risk.
Between the diminished profitability, the regulatory complications and the legal uncertainty, one wonders whether it's time for lenders to demonstrate to politicians and regulators what happens if the industry gets pushed too far. What would happen if regulatory insensitivity and infighting finally pushed lenders to simply exit the market altogether?
Perhaps, those who tout their protections for the financially underserved might realize that lenders are not always the enemy and that a predictable regulatory scheme is not simply a luxury — it's a necessity both for the lenders and ultimately the consumers who are supposed to be the beneficiaries of protective regulations.
When lending becomes more risky than profitable, the ultimate losers are the consumers that regulators are trying to protect.
Ari Karen is a partner at Offit Kurman and CEO of Strategic Compliance Partners.