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No Credit Crunch: The CFPB and Consumer Access to Credit

July 24, 2012
Mortgage Lending

Lack of regulation led to the foreclosure crisis that has destabilized the housing market and mortgage lending: Federal regulators could have stepped in to curb abusive lending practices in the years leading up to the foreclosure crisis, but this failed to happen. Instead, the private label securitization system bypassed government oversight by bundling an increasing number of subprime and Alt-A mortgages into mortgage-backed securities, and the widespread failure of these mortgages precipitated the still ongoing foreclosure crisis.

Dodd-Frank, and the creation of the CFPB, are important reforms to prevent a future housing crisis: Creation of a consumer protection agency that consolidates the consumer protection responsibilities of the independent banking regulators, along with reforms to the mortgage market and CFPB supervision of larger nonbank participants, are critical reforms that will help prevent a future housing and foreclosure crisis.

Dodd-Frank implementation can level the playing field without restricting access to affordable credit: The consumer protection reforms included in Dodd-Frank will be good for both consumers and the safety and soundness of our consumer finance system. In particular, the Ability to Repay and Qualified Mortgage provisions in the Dodd-Frank Wall Street Reform and Consumer Protection Act can ensure broad access to credit, help the vast majority of creditworthy borrowers access safe and affordable mortgages, and prevent the kinds of dangerous lending that led to the current foreclosure crisis.