It is an age-old game played out whenever nice American citizens elect to engage their recreational, lifestyle and business fantasies in a third world space. The nice people from their “state department” and their well meaning lawyers have assured them that, yes, there are problems, but they are not being experienced by the nice Americans. The “state department” folks assure them that there is even a special United Nations treaty to protect them. They arrive in the third world fully confident that whatever is going on up on the mountain has nothing to do with them. After all they aren’t drug dealers, pirates or scoundrels, they are just nice Americans.
All is well until that fine evening when they encounter the roadblock on their way to see the magnificent sunset that always exists just over the mountain from the last village. At first they are relieved to see these smiling folks with their M-16 rifles and khaki uniforms that sort of look like Dockers. They even feel a sense of stability and safety.
This feeling however quickly evaporates when the smiles turn to growling voices ordering them out of the vehicles and the rifles are pointed in their direction. Ever positive, the nice Americans act as if a mistake has been made. They point out that, after all, they are just nice Americans. They even explain to the now menacing Federal Police persons that they have no authority over them and that there is even a treaty that protects them. The growling faces now turn to joyous grins and enforcement process begins.
All that can be said about what happens next in these circumstances is that it is never good. It is really just a matter of how bad it could be.
A strong parallel can be drawn between the events outlined above and what is currently happening in the American residential real estate industry. A third world space is how one might describe the current residential real estate marketplace. There are nice Americans wandering about looking for the perfect sunset for their career, confident that the market they have known for the past twenty-five years is alive and well and just waiting to fund their retirements. The reality is that today’s residential real estate marketplace is filled with forces that are digitally disrupting virtually every aspect of the traditional marketplace.
Nowhere is this disruption more impactive than in industry regulation. The “Federales” here are easy to spot. They are called the Consumer Financial Protection Bureau (read CFPB). They are young (read inexperienced), they are dedicated (read don’t need no stinking knowledge about the industry), they are committed to protecting the American consumer (read peasant) and they get to keep a part of the fines (read loot). Most of all they are driven by a sincere and almost spiritual belief that American consumers are being harmed.
The only thing the nice American real estate licensees will not find is the M-16. Such weapons pale in comparison with the power and force made available to the CFPB warriors as a result of their enabling legislation; the now famous Dodd Frank Wall Street Reform Act. It is a piece of legislation unequaled in American jurisprudence. It affords the CFPB the power to enact rules with little or no review, execute enforcement with no appellate process and effect fines seemingly established only by the level of the Bureau’s annoyance.
Since 2011 the new “Federales” have marched a triumphant course through the traditional institutions responsible for student loans, payday loans, credit cards, automobile loans and most recently the mortgage industry. Today the Bureau is focused on reforming the real estate transaction. Their passion is fueled by thousands of consumer complaints. They are focused on the real estate licensee.
Depending upon one’s political and cultural beliefs, the Bureau’s actions to date have either been outrageous and un-American or righteous and redeeming. Interestingly enough what the general public thinks about the Bureau doesn’t matter. They are not asking for permission because they are legal. They are not trying to make friends because they are legal.
The industry is divided on how it is going to respond to the Consumer Financial Protection Bureau’s (CFPB) assault on the real estate transaction. To date the following Bureau strategies and tactics have emerged.
- The anemic enforcement policies of the Department of Housing and Urban Development relative to the Real Estate Settlement Practices Act enacted by Congress in 1974 have been terminated “for cause.”
- The Dodd-Frank Wall Street Reform bill of 2011 replaced HUD’s efforts with the motivated and muscular enforcement powers of the CFPB.
- The venerable HUD 1 form, having served as the administrative centerpiece of the real estate closing since 1975, will be replaced by a new process.
- The new closing process incorporates new standards and practices for loan estimates, closing disclosures, settlement agents, signing professionals, independent escrows (CA), Uniform Closing Dataset, HMDA data set, Universal Loan identifier, Universal Property Identifier, Universal Agency, integrated disclosures, mortgage disclosures, purchase disclosures, and appraisal rules.
- Accompanying these changes will be a new empowered and motivated enforcement program funded in part by the penalties and fines it collects.
- The CFPB has sent out RFPs for a new electronic closing system that will combine all of these changes into a sophisticated Internet based closing system that electronically identifies process violations.
In response to these significant changes the mortgage, title, escrow and closing segments of the industry are working overtime to be prepared for the August 15, 2015 onset of most of these changes. They are already in training for a new closing process. More importantly, they are moving to protect their businesses and professions by establishing, developing and implementing standards and best practices. This is what responsible people do under these circumstances.
What about the real estate services sector? Well, not so much. For the most part they are ignoring and/or denying this oncoming tsunami of regulatory fury. Their favorite response is based upon the “state department’s” interpretation of Dodd Frank that says the CFPB has absolutely no jurisdiction or power over the nice American real estate licensee. The second rational is that, after all, they are not drug dealers, pirates or scoundrels.
Over the near term future the American consumer and the free enterprise system, backed by the Bureau will make a determination of status relative to the licensee. In the meantime real estate professionals might want to avoid invitations to see beautiful sunsets. This is a basic tenant of “Federales” law.