The lending industry spent much of 2012 fearing the avalanche of consumer-friendly mortgage rules that the Consumer Financial Protection Bureau was working on. Uncertainty is not good for the lending market, they said. After some of these major rules were issued recently, that anxiety eased somewhat as lenders and consumer groups applauded most aspects of the rules.
But just as lenders thought they could put the days of uncertainty behind, questions were brought up: What if the appointment of the CFPB’s head is ruled unconstitutional? What if all the new mortgage rules are overturned as a result?
The hype began after a federal court of appeals ruled that President Barack Obama's recess appointment of three new members to the National Labor Relations Board violated the Constitution. The appointments were invalid because the Senate was technically not in recess on that day, the court says. Richard Cordray, the CFPB director, was appointed on the same day as the NLRB's members.
A CFPB spokesperson says, "The bureau is not a party in the recently decided case, and the court's ruling has no direct effect on the bureau."
The ruling certainly raises questions and takes away some of the certainty that lenders thought they were beginning to have regarding mortgage regulations, says Julia Gordon, director of housing finance and policy for the Center for American Progress.
"The housing market needs these rules to be in place," she says.
Before anyone hits the panic button, put big emphasis on the "ifs" behind these questions.
The NLRB case still has to go through the Supreme Court. If the Supreme Court upholds the decision, Cordray's appointment could be called into question. But even if that becomes the case, it wouldn't automatically invalidate the recently released mortgage rules.
"A conclusion that the Cordray appointment was invalid would leave a number of issues to be resolved as to the Bureau’s authority," says David Beam, an attorney and partner at K&L Gates in Washington, D.C. "For example, certain provisions of Dodd-Frank might be interpreted to say that certain powers conferred on the Bureau could be exercised only by a validly installed director."
But the courts might still rule that the bureau has the authority to take a number of significant actions even without a director, Beam says.
"In short, if courts finally decide that Cordray's appointment was invalid, it is possible that they will invalidate some of the actions that the Bureau took, but not all," he says. “In other words, the result might not be all or nothing."
And remember that while there may be questions about the rules, Gordon says, "There are certainly no questions about the statute." Some of the major rules that the CFPB has issued recently -- including the qualified mortgage or ability-to-repay rule -- were mandated by the Dodd-Frank law. And with or without Cordray, Dodd-Frank isn't going anywhere.