CFPB supervision doesn’t decrease mortgage lending, Fed researchers say

Oversight from the Consumer Financial Protection Bureau hasn’t significantly decreased mortgages made by the nation’s largest banks. It has affected the kinds of mortgages those banks offer, however, say researchers at the New York Fed.

Oversight from the Consumer Financial Protection Bureau hasn’t significantly decreased mortgages made by the nation’s largest banks.

That’s according to researchers at the Federal Reserve Bank of New York, who set out to “measure the effects on banks of CFPB supervision and enforcement activities” on the mortgage lending volume at banks with more than $10 billion in assets, the threshold at which banks become subject to CFPB supervision.

There was not a substantial difference in lending volume for mortgages between banks who became subject to CFPB supervision and those of the same asset size who did not after its creation, the paper said. Although lending volumes themselves fluctuated widely, they move very closely together for the two groups from third quarter 2011 to third quarter 2015.

The report looks at outcomes before and after July 2011, when the CFPB began operations, and compares commercial banks and savings banks on either side of the $10 billion asset threshold.

The trio of researchers – Andreas Fuster, Matthew Plosser, and James Vickery – did not examine the impact of new rules issued by the CFPB, such as the “Know Before You Owe” rule. That is because these rules generally apply to all banks, even those exempt from direct CFPB supervision, the researchers said.

Although the introduction of CFPB oversight didn’t greatly impact the overall lending amount, it did affect the kind of mortgages the banks made. Researchers found a 6 percent drop in the market share of CFPB-supervised banks for mortgages insured by the Federal Housing Administration. These loans tend to be riskier since they are made to lower-income borrowers and generally involve a small down payment. Instead, banks issued larger mortgages to the “jumbo” segment of the market, where borrowers tend to have higher incomes.

That finding aligns with what lenders, especially banks, have said about their participation in FHA loans. Many have cited increased legal and regulatory risks around the loans in recent years as a reason to exit FHA lending.

Researchers also found that banks just below $10 billion in size didn’t slow their growth to avoid crossing that regulatory threshold. Nor did they find any effects of CFPB bank oversight on noninterest expenses.