The Mortgage Deductions, the stakes

By KENNETH R. HARNEY

Oct 26, 2012

Limiting the homeowner mortgage interest deduction came up in two of the presidential debates, but specifics about who would be affected and how much they might lose in tax benefits were minimal. To put some rough numbers on the issue, here’s a quick primer on the mortgage interest deduction and related housing write-offs.

How big are they? Very big – which is why they have become such a tempting revenue-raising target for candidates seeking to reduce the massive federal deficit. According to estimates from the congressional Joint Committee on Taxation, the mortgage interest deduction alone will “cost” the federal government $484.1 billion between fiscal 2010 and 2014 – $98.5 billion in 2013 and $106.8 billion in 2014. Write-offs by homeowners of local and state property taxes account for another $120.9 billion during the same five-year period.

Keep in mind: What “costs” the federal government also represents significant tax savings for the people who take the deductions, in this case the millions of homeowners who save thousands of dollars a year that they are not paying to the IRS. In fact, according to a new analysis by Jed Kolko, chief economist for the real estate information site Trulia.com, among those taxpayers who itemize on their federal returns, 49 percent of total write-offs are housing-related – primarily mortgage interest and local property taxes. For homeowners as a group, this is a big deal.

But since only about one-third of all taxpayers itemize on their returns – the rest opt for the standard deductions – who’s really getting these tax savings? As you might guess, people who have higher incomes are more likely to itemize and claim mortgage interest and other housing deductions. Citing the latest data on the subject, published by the IRS in 2009, Kolko found that while just 15 percent of households with incomes below $50,000 took itemized deductions, 65 percent of those with incomes between $50,000 and $200,000 did. Just about everybody with income above $200,000 – 96 percent – itemized on their returns.

In an interview, Kolko said that a $25,000 cap on itemized deductions, as proposed by Mitt Romney in the second debate, would hit people in the $50,000 to $200,000 income range, since their average total write-off (for mortgage interest, charitable contributions and all the rest) was $24,000. It would take a much bigger bite out of upper-income households beyond $200,000, of course, where the average total for all itemized deductions came to $81,000 in the IRS data from 2009. Romney’s plan envisions that the losses in deductions for all categories of taxpayers would be offset by the lower payments they’d be making based on a one-fifth reduction in marginal rates. President Obama supports a cutback in housing-related and other write-offs for people with incomes above $250,000, capping the marginal rate at which they can take their deductions at 28 percent.

So where do homeowners who claim the biggest mortgage interest deductions – and would be most vulnerable to caps and cutbacks – live? The Tax Foundation, a nonpartisan research group based in Washington, D.C., did a study based on the 2009 IRS data, and found that there are dramatic differences state by state. As a general matter, residents of states with high housing and tax costs, large average mortgage balances and high household incomes write off the most; states with low housing costs and incomes the least. Any significant cutbacks on deductions would hit the high-cost states the hardest, absent compensating savings from elsewhere in any forthcoming tax code changes.

California ranked No. 1 in the size of home mortgage deductions, with $18,876 on average. Next came Hawaii ($16,730), the District of Columbia ($16,720), Nevada ($15,502), Washington ($14,262), Maryland ($14,162) and Virginia ($14,094). At the opposite end were homeowners in Oklahoma ($7,992), Iowa ($8,104), Nebraska ($8,233), Mississippi ($8,301) and Kentucky ($8,345). Maryland is tops in the percentage of taxpayers taking mortgage interest write-offs (37.5 percent), followed by Connecticut (34.7 percent), Colorado (33.7 percent) and Virginia (33.6 percent).

What’s the outlook on cutting back deductions? Two of the traditional political guardians of the housing tax benefits – the National Association of Realtors and the National Association of Home Builders – say they are digging in for battles next year, no matter who wins the presidential election.

“The real debate” on housing deductions, said Jamie Gregory, deputy chief lobbyist for the Realtors, is not on TV between Obama and Romney, but on Capitol Hill next year, where both groups are planning major defenses.

What a Romney Victory Would Mean to the CFPB

By Kate Davidson

OCT 25, 2012 5:26pm ET

WASHINGTON – Although the prospects of eliminating the Consumer Financial Protection Bureau are close to zero, changes to its leadership structure appear increasingly likely if Mitt Romney wins the White House.

What is less clear is what a Republican administration would mean for the agency in the short term.

Republicans have refused to confirm an agency head until reforms are made, a mantra that may make it awkward to send up their own nominee.

But the urgency with which they move ahead depends largely on the agency’s director, Richard Cordray, who many expect will ride out the last year of his recess appointment before running for higher office in his home state of Ohio.

“If you’re running for office and you want to be a foil against the administration, staying in and being a thorn in their side kind of works to your benefit,” said Mark Calabria, the director of financial regulations studies at the Cato Institute, and a former staffer for Republican Sen. Richard Shelby. “There’s a lot of reasons to suspect he would not leave.”

As a recess appointee, Cordray’s term lasts until the end of 2013, rather than the typical five-year term for a Senate-confirmed appointee.

Political appointees often offer to resign when a president of the opposing party is elected so that the new administration has a chance to install their own people.

But with Republicans so openly hostile toward the Dodd-Frank Act, and the CFPB in particular, observers said Cordray is likely to stick around.

“I think he has the wherewithal to stay even if it becomes uncomfortable,” said Daniel Meade, a partner with Hogan Lovells and former senior counsel for the House Financial Services Committee. “He might even view it as his duty. I doubt that Director Cordray would resign to let a President Romney appoint a new director. I think he’d stick it out as long as the term allowed.”

Isaac Boltansky, an analyst at Compass Point Research & Trading, said he expects Cordray to make a move back to Ohio at some stage, however.

“I think he would make the Romney administration make the next move, but ultimately we all know what his next address is go to be: he’ll be going back to Columbus,” Boltansky said.

Some observers said they don’t expect the Romney administration would rush to fill the slot.

The new president would be faced with a slew of open financial regulatory positions, and is likely to be far more focused on filling slots at the Treasury Department, Federal Deposit Insurance Corp. and Securities and Exchange Commission.

In addition, Calabria said, sending up a nominee for the bureau could be viewed as somehow legitimizing an agency of which Republicans remain skeptical.

“It’s kind of hard to say we’re against the agency and we think it’s going to be reformed and we’re not going to nominate anybody until it’s done,” Calabria said. “You might have a situation where Romney sends a name up and sends a message as well saying, ‘I support these changes and I’m committed to working with Congress to do that.’”

With the potential for eight years under a Republican administration, some say a Romney win could lead to a flurry of activity as the CFPB tries to make the most of its final year under Cordray’s leadership – another common side effect of a new party taking control of the White House.

“Even the Clinton administration, which wasn’t defeated, they did a lot in the last few weeks to finish up what they wanted to do, so I would expect that to happen,” said Wayne Abernathy, the head of financial institutions policy and regulatory affairs at the American Bankers Association, and a former assistant Treasury secretary.

Still, others pointed out that rules, by their nature, take a long time to prepare, propose and finalize, and that it would be a Herculean effort for the CFPB to shift gears or ramp up activity in the face of a new administration.

Even if they could, others said it’s not politically feasible for them to do so.

“That can backfire,” Meade said. “Because then you might say, ‘OK, this agency really is overstepping its mandate.’ Then do you give credence to arguments on the other side of, ‘Let’s repeal this agency?’”

Cornelius Hurley, the director of the Boston University Center for Finance, Law & Policy, said the overall supervisory climate is likely to change under a Republican president who has campaigned on a platform of less regulation.

“It would be hard to swim against the tide if the zeitgeist in Washington becomes deregulation again, and you have this one agency that’s going in a different direction,” Hurley said.

While the short-term picture is somewhat blurry, observers said it appears likely that the Romney administration would have support for legislative fixes to Dodd-Frank, including changes to the CFPB.

As part of their refusal to vote on nominee, Republicans called for three key changes: they want the bureau to be led by a five-member commission, rather than a single director; they want the agency to be funded through the appropriations process; and they want to make it easier for regulators to overturn the agency’s decisions.

The commission structure, which had the initial support of the bureau’s architect, Elizabeth Warren, as well as some Democratic lawmakers, appears to have an inside track toward passage, Boltansky said.

“Accountability now all of a sudden may become much more appealing to consumer groups when there is a Republican administration in office,” Abernathy said. “But I think what’s good about that is Republicans have established a record of saying they want accountability, too. So maybe that’s what brings the Rs and Ds together.”

Harbingers of Crisis Propose Return to Subprime Mortgages

By Kate Davidson

OCT 23, 2012 1:28pm ET

WASHINGTON – Two housing advocates who raised some of the earliest warnings in 2005 about the impending housing crisis are calling for a return to subprime lending.

Bob Gnaizda and John Hope Bryant realize it’s a bit of a head-scratcher. Nevertheless, they are making the rounds in Washington and on Wall Street to promote their prototype for a responsible, alternative mortgage for less-than-prime borrowers.

“Talking about ‘subprime’ today is like talking about the devil,” Bryant, the chief executive of Operation HOPE who serves on the president’s advisory council on financial capability, said in an interview. “Nobody wants to use the word subprime, but frankly, we think that’s the future.”

Bryant and Gnaizda, the general counsel for the Black Economic Council, the Latino Business Chamber of Greater LA and the National Asian American Coalition, say the pendulum has swung too far in the other direction in the wake of the subprime crisis. Enhanced regulatory scrutiny has made lenders reluctant to offer loans to borrowers without pristine credit histories and hefty down-payments. That has had the unintended effect of redlining low- and moderate-income – and often black and Hispanic – borrowers.

Borrowers with lower incomes and those receiving smaller loans were more likely to receive higher-priced loans in 2011, according to a Federal Reserve analysis of Home Mortgage Disclosure Act data. Black and Hispanic borrowers also faced notably higher denial rates than Asian or white borrowers, the data showed.

Gnaizda and Bryant are proposing what they call the Dignity Mortgage, a loan that could be made to non-prime borrowers with built-in protections and incentives for both borrowers and lenders.

Under the proposal, Dignity Mortgages would only be available to people who complete certain financial literacy training, who have an income of 120% or less than the regional poverty level, and who are buying homes at 95% or less than the median price in the region.

In order to adjust for risks, lenders would be able to charge 1.25% above the lowest prime rate for a 30-year fixed-rate mortgage. If, however, the borrower makes timely payments for the next five years, the rate would be lowered to the lowest fixed-rate at the time, and the 1.25% premium would be applied to reduce the homeowner’s principal.

In addition, a borrower could take advantage of a “reset clause” that would allow him to suspend payments temporarily during an emergency – such as job loss or the death of a spouse – provided he has made timely payments for a certain period of time.

And the kicker: if the loan met all of the above terms, Fannie and Freddie would be required to purchase the loan with limited or no recourse against the bank.

Bryant and Gnaizda suggest that the loans could represent only 20% of the market for the first three years, and should be treated as the equivalent of qualified mortgages for the purpose of calculating capital requirements.

Gnaizda, the former general counsel for the Greenlining Institute, said lenders should also be able to get credit for the loans under the Community Reinvestment Act, not only for lending but for service and investment.

Ultimately, the Dignity Mortgage could be a benefit to both borrowers and lenders, Bryant said.

“You get your dignity back, (and) you get a chance in a capitalist society to reset your life without being called a bum or being pursued financially, or your credit ruined,” Bryant said. “And the lender gets to not have Wall Street cite a bad credit and have the regulators call for more capital.

“Maybe, just maybe, if we bake that in, you can actually sell that into the secondary markets and the GSEs and create a new norm,” he said.

Gnaizda and Bryant, along with National Asian American Coalition President and CEO Faith Bautista, said they’ve been meeting with high-level officials at the banking agencies, and may appeal to lawmakers or the White House for support.

Bryant insists such loans wouldn’t require legislative action, just a change to current regulations.

They also need banks on board – large institutions – that would be willing to pilot test the program. Gnaizda said they have shared the proposal and received feedback from eight financial institutions, ranging from $1 billion of assets to $300 billion, including Wells Fargo & Co. (WFC), Regions Financial Corp. (RF), U.S. Bancorp (USB) and Union Bank N.A.

The challenge, Bautista said, is that both sides are waiting for the other to make the first move. Banks don’t want to wade into this area without assurances that regulators are on board with the loans, and regulators often are reluctant to weigh in on an untested product.

“When you talk to the regulators, they’re waiting for the banks to do it, and when you talk to the banks, they’re waiting for the regulators to give them a green signal,” Bautista said.

Gnaizda said many of the bankers they’ve spoken with are positive about the concept and don’t believe that the problem of lower lending rates for African-American and Hispanic borrowers lies with them.

“They don’t want to redline and we agree with them that we don’t think they do, but they said there are unintended consequences of many federal rules and regulations,” he said.

One banker, who reviewed the proposal but asked not to be identified because his company is not affiliated with the program, said he agreed with Gnaizda and Bryant’s hypothesis – the cost of managing risks makes lending to borrowers with checkered financial histories next to impossible right now.

“How do you insulate from problems? Big down payments and bullet-proof Fico’s,” he said. “It’s the end consequence of everyone trying to drive the banking industry to no mistakes, no losses, nothing.”

He said he would need “very clear bright lines” that would prevent Fannie and Freddie putbacks if the loan met certain criteria.

Jason Stewart, the director of research at Compass Point Trading & Research, said the loans would have to be guaranteed by the government for the program to be feasible.

“Otherwise, under Basel III or any other regulatory capital scheme it’s going to be very punitive,” he said. “If you remove the government guarantee, there’s no chance it happens.”

But a government guarantee comes with its own problems, including who pays if the mortgage becomes delinquent.

“This is completely at odds with what the market has been saying about introducing private capital and reducing government support,” Stewart said. “It just doesn’t seem to fit in with what [FHFA Chairman Ed DeMarco] wants to do.”

Still, Stewart said, there are investors looking for lenders who can originate subprime mortgage loans “at a risk-adjusted rate that makes sense.”

“This is a great business right now,” he added. “It’s not a dirty word if it’s done properly.”

Bryant said he knows the proposal will meet resistance, but it’s just a starting point for a conversation.

“What nobody can say is that this is a stupid idea,” he said. “We vetted it with the regulators – nobody said this is crazy. There’s no piece of this that’s a poison pill that absolutely just can’t be done.”

Lenders Feel Paralyzed by Flurry of Mortgage Rules

By Kate Berry

OCT 19, 2012 2:45pm ET

David Berenbaum, a consumer activist, finds himself in rare agreement these days with bankers who claim that a proposed mortgage rule that takes effect next year would hit low- and moderate-income consumers hardest.

Berenbaum, the chief program officer at the National Community Reinvestment Coalition, is best-known for filing complaints against banks and mortgage lenders claiming high minimum FICO scores on Federal Housing Administration loans have cut off access to credit to African-Americans, Hispanics and immigrants.

But these days Berenbaum is siding squarely with banks, warning that a proposal in the Dodd-Frank Act, the so-called qualified residential mortgage rule, would discourage banks from lending to minorities and the poor.

“Never in my life would I believe I would have the exact same position as banks and mortgage lenders. It’s a very unusual turn of events,” Berenbaum says. “But we do not want to see a restriction of credit. We want the standards to promote responsible lending but not to restrict credit for qualified homebuyers.”

Berenbaum’s issue is with a provision that would essentially require higher down payments from borrowers. But it’s one of just a slew of proposed policy changes – from Basel capital standards to rules governing a borrower’s ability to repay to Fannie Mae and Freddie Mac guarantee fees – that could further suppress mortgage origination activity. Lenders, with an assist from community activists, are fighting hard to water down some of the new rules, which they argue are so onerous that they could force them out of the mortgage lending business.

Jaret Seiberg, a managing director and senior policy analyst at Guggenheim Partners’ Washington Research Group, has identified at least eight mortgage regulations that he claims increases the risk “of an unintended housing credit crunch in 2013.”

Topping the list is the qualified mortgage rule, which requires the Consumer Financial Protection Bureau to define standards for ultra-safe loans to meet the Dodd-Frank Act’s requirement that lenders ensure a borrower has the “ability-to-repay” a loan. The CFPB is under pressure to have the rule, which is different from the qualified residential mortgage rule, written by Jan. 21.

Next in line is Basel III, which dictates how much risk-based capital banks must hold against certain assets including residential mortgages. Home-equity lines of credit, first liens with balloon features and adjustable- rate mortgages have the highest risk weightings, which is causing banks to pullback from originating such assets.

While the rule-making for Basel III takes effect Jan. 1, most banks have a phase-in schedule that doesn’t require full compliance until 2015 at the earliest.

Aside from those potentially game-changing rules, banks are also facing higher guarantee fees by Fannie Mae and Freddie Mac and higher premiums for Federal Housing Administration loans. Lending could be also further constrained by two long-shot issues: eminent domain proposals by a few local governments that want to seize and restructure mortgages of underwater borrowers, and the mortgage interest deduction, a widely-popular tax credit that some lawmakers want to eliminate to reduce the deficit.

“The market might be able to overcome any one of these but it’s the collective weight that’s frightening,” says Seiberg.

Handicapping the regulatory process is no easy feat, but the good news for lenders is that sentiment on some of the regulations appears to be shifting in their favor as regulators balance the need for safety and soundness with the desire for the largest number of consumers to have access to credit. Community banks in particular appear to have the ear of Comptroller of the Currency Thomas Curry, who has said regulators may ease the burden of pending Basel III requirements for small banks.

“We will be taking a fresh look at the possible scope for transition arrangements, including the potential for grandfathering, to evaluate what we could do to lighten the burden without compromising our two key principles of raising the quantity and quality of capital and setting minimum standards that generally require more capital for more risk,” Curry said in a speech at the American Bankers Association’s annual convention..

But on qualified mortgages, banks may not necessarily get exactly what they want, which is a “safe harbor” from litigation on all loans that fit the CFPB’s definition of a qualified mortgage. The CFPB may end up compromising by giving banks relief from litigation on a small segment of loans.

Either way, banks see themselves in a Catch-22. If the rules are too rigid, banks will have little choice but to restrict lending. But if they are ill-defined or too loose, banks say they face higher compliance costs and increased risk of litigation.

Like many banks, the $634 million-asset First Capital Bank in Midland, Tex., sells most mortgages it originates to free up capital to make more loans. But Ken Burgess Jr., the bank’s chairman, says a clause in the proposed Basel regulations that would require banks to set aside capital for potential buybacks of loans, would simply be too big a hit to its capital base for the bank to continue originating mortgages. Even if they were allowed to grandfather existing mortgages, “we’d still have to exit the business,” Burgess said in a panel discussion at the ABA conference.

On the same panel, John Ikard, the president and chief executive of the $12 billion-asset FirstBank Holding in Lakewood, Colo., said his company has only foreclosed on 20 of the 17,000 to 18,000 mortgages on its books, instead preferring to work with borrowers to avoid such a drastic step. “Under Basel III, I’m not sure if it makes sense to avoid foreclosures. It could change how I run my company,” he said.

Andy Sandler, chairman and executive partner at the law firm BuckleySandler, says banks are fearful that tight standards, particularly on the qualified mortgage rule, will expose them to accusations of discrimination against minorities. They are preparing for more penalties, lawsuits and investigations from regulators not necessarily from lawsuits filed by borrowers themselves.

“In the current environment, all of these rules are going to restrict product and the availability of credit to the credit-impaired. The result is going to be fewer and more expensive loans to lower- and moderate income and minority borrowers,” Sandler says. “There are better ways to ensure against predatory lending.”

He cited two recent lawsuits as examples of lenders’ increased litigation risk. Earlier this month, the Federal Housing Administration filed a civil fraud suit against Wells Fargo alleging more than 10 years of misconduct including “reckless” origination and underwriting of FHA loans, and “intentional concealment” of loans that had deficient underwriting and disclosures. (FHA loans have the loosest underwriting requirements with a minimum 580 FICO score and 3.5% down payment.)

In September, Luther Burbank Savings in Santa Rosa, Calif., agreed to settle a lawsuit claiming it discriminated against minorities because it set a $400,000 minimum loan amount for jumbo mortgages that resulted in too few loans being made to black and Hispanic borrowers over a four-year period.

If anything is certain about the slew of regulations, it’s that credit tightening and loosening both come at a hefty price either in higher litigation costs or a possible reduction in lending volume and profits.

“On one side they’re telling us things are crazy and we need to get our underwriting in check, and then they come after us for imposing standards,” says Richard Andreano, a partner at law firm Ballard Spahr. “It’s the Goldilocks issue. When is it just right?”

Though banks are earning the highest profits in years from mortgage banking, thanks to a year-long refinance boom aided by government programs and ultra-low interest rates, banks want to sustain strong mortgage profits when the refinance boom eventually dries up. While that is not expected for several quarters, if not longer, banks are mindful that current home purchase volume is a fraction of what it was during the heady days of the housing bubble.

Ed Pinto, an industry consultant and former executive at Fannie Mae, says bankers’ concerns are overblown and driven entirely by the desire to sell loans to the largest possible number of customers. He has been arguing for tough underwriting standards even if it means excluding underserved communities where defaults tend to be much higher and low FICO scores a predictor of a loan going sour.

“The goal should be to get people in houses for the long-term not just get them in houses, which is the goal of the housing lobby,” Pinto says. “Flexible underwriting is a code word for loose lending. The history of the mortgage industry is to slide down a slippery slope in terms of moving up the credit curve.”

Banks have been skittish about lending, and have already tightened credit standards considerably, for good reason. They have absorbed billions in losses, paid out massive amounts in lawsuits and are afraid of being forced by Fannie Mae, Freddie Mac and FHA to buy back loans that go bad.

But Berenbaum at NCRC says it is unlikely that banks will stop lending if they don’t get the safe harbor. Bankers push for the most extreme position as part of their jockeying to at least some relief from litigation.

“Lenders will in fact continue to lend,” Berenbaum says. “Given the excesses that led to the collapse of the housing market, we’re hard pressed to find other industries that get a safe harbor from litigation.”

Berenbaum agrees with banks, however, that a tighter credit parameters for the qualified mortgage would restrict many minorities and even moderate-income borrowers from becoming homeowners. He also wants banks to have more leeway in credit decisions.

Like a number of community groups, NCRC is concerned that lenders will simply not make a loan if it falls outside of qualified mortgage guidelines.

“In the unlikely event they are made, they will be far costlier, burdening families least able to bear the expense,” the NCRC said in a letter to CFPB Director Richard Cordray earlier this year that was co-signed by more than 30 other community, bank and real estate industry trade groups.

Dave Stevens, the president and CEO of the Mortgage Bankers Association, continues to frame the issue as one in which access to credit particularly for blacks and Hispanics is in jeopardy. He is against one potential requirement that borrowers have a 43% total back-end debt-to-income ratio to meet the “ability-to-repay” standard.

“Hard-line underwriting doesn’t work in the U.S. which is a melting pot of various demographics and cultures, and variable sources of income,” says Stevens. “There is ultimately going to be a large segment of borrowers who do not have access to homeownership because of the fear that there is the slightest risk of default.”

Debt-to-income ratios have been central to the qualified mortgage debate because data shows the higher percentage of a borrower’s income that goes towards all debt from housing, credit cards and auto loans, the higher the likelihood that borrower will default.

A report last year from data provider CoreLogic found that nearly 12% of all loans sold to Fannie Mae and Freddie Mac in 2010 would not meet the 43% debt-to-income. If FHA loans were included, roughly 40% of all loans originated in 2010 would not meet the standard.

Still, what’s wrong with toughening standards for borrowers who have a higher likelihood of default, asks

Bob Simpson, the president of IMARC, an Irvine, Calif., quality control and loan auditing firm. He says it’s hard for lenders to argue that borrowers should have higher debt loads given past lax standards that led to the housing market’s collapse.

“People may want pride of ownership but we just lived through the biggest crash since the Great Depression,” Simpson says. “And here we are years after 2006 and we’re still trying to figure out what to do with the overhang, debt forgiveness and underwater homeowners.”

Paul Davis contributed to this story.

CFPB Enforcement Head Vows to Be Fair: ‘It’s Never Personal’

By Victoria Finkle http://www.americanbanker.com/authors/1227.html

OCT 19, 2012 12:58pm ET

WASHINGTON – Ask longtime regulator Steven Antonakes what qualities he looks for when hiring a bank examiner, and his description sounds an awful lot like the man himself.

The associate director for supervision, enforcement and fair lending at the Consumer Financial Protection Bureau and a former commissioner for the Massachusetts Division of Banks, Antonakes, 44, estimates that he has conducted more than 2,500 examiner interviews over the course of his 22-year career.

“You need someone, obviously, with strong analytical skills and good communication skills. You want someone who is fair at the end of the day,” Antonakes said in an interview in his office last month. “I don’t want someone who is going to go in with a preconceived notion, and who’s not going to pay attention to the information that’s in front of them.

“There are times when there are disagreements, and it’s incumbent upon the examiner to always keep cool and just present the information. It’s never personal,” he added.

Those who have worked with him, both at the CFPB and in Massachusetts, describe a similar person: analytical, calm and unbiased. Speaking softly but quickly, he comes across as a Joe Friday, “Just the facts, ma’am,” figure when you meet him.

“He really is a consummate regulator – and coming from my world that’s a flattering thing,” says John Ryan, president and chief executive of the Conference of State Bank Supervisors.

“He approaches things in a fact-based, fair manner,” Ryan adds. “There’s a slow, careful build to Steve in certain assessments.”

Others describe a reserved but focused leader.

“Steve is a man of few words, but when he speaks, his words are deeply powerful,” says Catherine West, who served as associate director and chief operating officer at the CFPB during its infancy, and now works as a managing director at consultancy Promontory Financial.

“He sits back in a meeting and really thinks about things, and he focuses on the central issue,” says West. “He’s not the guy playing on his BlackBerry or leafing through pages.”

Critically, Antonakes’ balanced approach – and what he calls a focus on “substantive consumer harm versus ticky-tack, technical compliance issues” – could prove advantageous for an agency repeatedly accused of having a political agenda. Bankers have bristled at CFPB oversight since the bureau’s inception, warning that its powers under Director Richard Cordray are unfettered and that new, tougher rules would do more harm than good.

As such, Antonakes’ appointment may provide some comfort for an industry facing a host of new compliance challenges. Industry veterans who know him say Antonakes is driven to set rules that help the industry run better, not bog it down.

“He’s not a regulator for regulation’s sake. He wants to have a set of predictable rules that allow banks to operate in safe and sound manner,” says Richard Schaberg, a partner at Hogan Lovells, who represented a number of state chartered banks in front of Antonakes. “He’s not for having an apparatus over financial institutions because he thinks they need baby-sitting.”

His experiences in Massachusetts, including overseeing more than 200 state-chartered banks and credit unions and 4,500 nonbank financial institutions, may also help guide the bureau as it ramps up supervision of the mortgage industry, including nonbank mortgage lenders and servicers. The agency is also working on a slew of rules, including standards for mortgage servicing and regarding a borrower’s ability to repay a mortgage.

“Supervision of nonbank mortgage lenders and servicers is a top priority. Before the creation of the bureau, a significant part of the mortgage market was not subject to federal supervision,” Antonakes says. “We are working closely with state regulators in an effort to ensure a level playing field in the nonbank mortgage industry and to closely coordinate our supervisory work.”

He notes that as the industry evolves, the bureau will have to stay nimble to address the latest challenges, rather than focus on problems of the past.

“You need to have a supervisory approach that is flexible and adapts to changes in the marketplace in real time so you don’t waste resources chasing yesterday’s problem,” he says. “For example, state legislatures were still tackling predatory lending practices in the refinance market just as new challenges in the purchase money market were coming to the forefront in the form of new high-risk mortgage products.”

Not a ‘Boyhood Dream’

Antonakes started working as an entry-level bank examiner in Massachusetts in 1990, after graduating from Pennsylvania State University with a liberal arts degree.

Born and raised in Massachusetts, he says the decision to become an examiner was more happenstance than strategy, in part because the state’s banking agency was in the process of doubling its corps in the wake of the savings and loan crisis.

“I don’t think anybody has a boyhood dream to be a bank examiner someday. I would have much preferred playing first base for the Red Sox. It wasn’t a lifelong plan – I just sort of fell into this line of work,” he says. “I was just very happy to have a job two weeks out of school and for the opportunity to learn during a challenging period for the banking industry.”

But Thomas Curry, who went on to serve as the top banking regulator in the state ahead of Antonakes, notes that even then his temperament made him well suited for the job.

“From the minute I interviewed him I was impressed with him for a lot of the characteristics that he’s displayed throughout his career. He’s smart, he’s thoughtful and he’s really a bright, capable guy,” says Curry, who now heads the Office of the Comptroller of the Currency.

Antonakes describes his time at the division of banks as a “thorough immersion into all regulatory matters.”

“I got to see the process from every aspect possible, from being a front-line examiner, to being in the office reviewing those reports and determining appropriate corrective action, to working on all sorts of operational activities, to reviewing proposed mergers and new bank charter applications, to working on state and federal legislation and rulemaking,” he says.

He also furthered his education while at the agency, receiving an MBA from Salem State University and a PhD in law and public policy from Northeastern University.

Antonakes assumed the top role at the Division of Banks when Curry was tapped to join the Federal Insurance Deposit Corp.’s board of directors in late 2003.

Those who knew Antonakes point to several initiatives he embraced as a leader at the agency.

Ryan, head of the CSBS, lauds his efforts to help establish the group’s nationwide mortgage licensing system and registry. The database, which was launched in 2008, currently tracks mortgage originators and lenders across the country. “The goal would be and was to come together and create a standard for mortgage originators and how they would license multistate mortgage players in a coordinated fashion,” Ryan says. “He knew this was high risk, because CSBS was investing a lot of financial resources, and we had to be able to get states together.”

“Steve saw the problem so clearly that he thought that any risk would be worth it,” Ryan adds. “He was of the view that sometimes you just have to do the right thing – and that that’s worth more than anything.”

In November 2006 Antonakes organized a statewide summit, bringing together the mortgage industry, consumer advocates and other stakeholders to address myriad subprime lending and foreclosure concerns.

That’s “when we first noted that foreclosure rates started to increase in Massachusetts from almost nothing to starting to see some activity there for the first time,” he says.

“The goal of the summit was trying to bring together people who don’t necessarily agree but all have a vested interest in ensuring that we could avoid unnecessary foreclosure,” Antonakes adds.

The summit and subsequent working group meetings led to foreclosure prevention legislation being filed and enacted in 2007, ahead of the national housing crisis.

“Steve was one of the boots on the ground early in his career, so he was able to learn the income statements and balance sheets on a bank-by-bank basis, and he began to develop a real nose for what some of the real problem areas were,” says Daniel Forte, president of the Massachusetts Bankers Association.

Throughout his career, Antonakes’ success has also been bolstered by his ability to build a strong team, according to those who know him.

“He surrounds himself with good people. When I think back to his tenure, he did a nice job of relying on his first deputies. He carefully selected them and they were very good at what they did,” says Hogan Lovells’ Schaberg.

‘Historic Opportunity’

The ability to build a team has carried over to his work at the CFPB, where Antonakes was initially tasked with helping fill out the agency’s ranks. He was tapped by the Treasury Department to join the CFPB’s implementation team as head of bank supervision in November 2010. He rose to chief of supervision, enforcement and fair lending in June 2012.

“Steve’s biggest challenge was going from zero to 700 people in a short time frame,” says Promontory’s West. “He is hands-on, dedicated to ensuring we attracted the right people.”

“He works collaboratively with people. He hired terrific direct reports who are now running regions across the country,” she adds. “He has a high bar of competency level of people. He personally takes on the challenge of recruiting and is very selective.”

Antonakes says his move to Washington was driven by the “historic opportunity” working at the bureau presented: he was drawn to its consumer protection mission, the chance to create a level playing field at the federal level between banks and nonbanks and the ability to “take a fresh look at everything” at a government startup.

As one of the first several dozen hires at the bureau, he calls the early days on the job “fascinating,” noting that it was “somewhat akin to what it must have been like working in Steve Jobs’ garage – it was a startup in every sense of the word.”

And the work is still just as wide-ranging now that the agency is up and running – from executing on its to priorities to managing, grooming and engaging staff.

“We have to manage not only our own folks at headquarters, but a fairly significant population of examiners that are living across the country and perhaps don’t feel the same degree of connection with an agency as someone sitting down the hallway,” he adds.

But challenges in building up the new agency remain, and Antonakes says his priorities are varied for the coming year.

Apart from ramping up its oversight of nonbank lenders, such as mortgage and payday lenders, the CFPB will also be taking a closer a look at the credit bureaus. Antonakes also aims to continue building up the supervision, enforcement and fair-lending offices, which are roughly two-thirds staffed, and to improve the agency’s overall efficiency.

The top priority, though, will always be to make sure that financial firms are doing right by their customers. Part of creating a new agency, he says, “is just being very thoughtful in terms of product, market share, other risk criteria, and where we focus our resources in these early days to ensure we’re maximizing protection to consumers.”