For CFPB, Parsing Which Rules Stay, and Which May Go

By Kate Berry

JAN 28, 2013 5:17pm ET

Richard Cordray’s recess appointment to the Consumer Financial Protection Bureau may ultimately be invalidated, but legal experts say several recent mortgage regulations approved on his watch may still be upheld.

But questions remain whether other rules that apply primarily to nonbanks, such as payday lenders and credit reporting agencies will hold up because, absent a permanent director, the CFPB would have no authority to create or enforce them, attorneys and industry consultants say.

The uncertainty stems from a court ruling Friday that invalidated President Obama’s appointments of three new members to the National Labor Relations Board while the Senate was on its winter break. On that day, Jan. 4, 2012, Obama also named Cordray the director if the CFPB, and many Washington insiders expect that Republicans who opposed Cordray’s nomination in the first place will use the NLRB ruling to challenge his appointment.

Apart from whether Cordray’s appointment would stick – most experts believe that will ultimately be decided by the Supreme Court – there are real questions about whether the myriad rules the CFPB has written in the last year would remain valid. Of particular concern are rules relating to mortgage lending, servicing, and loan officer compensation, all of which were released in the last two weeks.

Several lawyers say the recent mortgage rules will not be overturned even if it turns out that Cordray’s recess appointment was unconstitutional. Ray Natter, a partner at the law firm Barnett Sivon & Natter, says it is unlikely that a court would invalidate the so-called qualified mortgage rule, which would essentially ban lenders from making the riskiest loans, out of “fear of the chaos that would result.”

Moreover, even if the court were to void the existing qualified mortgage rule, the Treasury secretary could step in and assert the authority to issue a new rule because, under the Dodd-Frank Act, it has the authority to carry out certain CFPB functions.

“In this situation, the court would have discretion to fashion remedies that it feels are appropriate including looking at the public good and fairness,” Natter says. “The fact that voiding the final QM regulation may cause significant disruption in the mortgage markets will weigh in favor of maintaining the validity of the final QM rule.”

Some analysts think the Treasury secretary could step in as acting director of the CFPB and re-propose all the bureau’s prior rules, essentially creating a new rule-writing process. But starting from scratch could create more uncertainty and cause nonbanks in particular to drastically curtail their lending, according to David Stevens, the president and chief executive of the Mortgage Bankers Association.

“The last thing the industry needs right now is a new round of uncertainty,” says Stevens. “Cordray has proven himself to be an effective director and they have put out rule-makings that the industry is working to implement, and if they were suddenly overturned and the industry found itself in non-compliance, it could cause severe repercussions.”

Still, Treasury’s CFPB authority only goes so far; under Dodd-Frank, it has limited jurisdiction over non-depository institutions. If Cordray is determined to be only the bureau’s acting director, then the bureau would not have authority over certain areas including: prohibiting unfair, deceptive or abusive acts; prescribing rules and model disclosure forms; and supervising non-depository institutions.

Andrew J. Pincus, a partner with Mayer Brown LLP who represents the U.S. Chamber of Commerce, says the Obama administration now faces a conundrum.

“If we’re now in the world where there’s no CFPB director, and the power is vested in the Treasury secretary, there’s a strong argument that the rules would be invalid because they were signed by Cordray,” Pincus says. “They could have the Treasury secretary go back and sign them, but the Treasury secretary only has the power to exercise authority over banks.”

Alan Kaplinsky, a partner with Ballard Spahr, says the NLRB ruling could potentially roll back the clock to Jan. 3, 2012, when the CFPB was operating under an acting director and, as a result, the bureau could not issue any new rules against nonbanks.

“There will be doubt over the things the CFPB can do with respect to nonbanks,” Kaplinsky says.

Others say whatever happens, the CFPB’s past rules are unlikely to be invalidated by any court.

“Even if the Supreme Court rules that the appointment was unconstitutional, it does not mean that everything Cordray did as CFPB director is illegal,” wrote Jaret Seiberg, at Gugghenheim Securities, in a research note. “The courts have the ability to rule that prior decisions remain in effect because Cordray was acting in good faith. So the Qualified Mortgage rule, the servicing rule and enforcement actions are likely to stand regardless of the outcome.”

IRS to simplify deduction process for home offices

By Kenneth R. Harney

Posted 01/25/2013 5:16AM

WASHINGTON – If you’re one of the millions of homeowners and renters who work or run a business from the place you live, here’s some good news on taxes: The Internal Revenue Service wants to make it easier for you to file for deductions on the business-related use of your home.

Rather than the complicated 43-line form you now have to fill out to claim a write-off – the instructions alone take up four pages of text and involve computations ranging from depreciation to utility bill expense allocations – the IRS has come up with a much simpler option: What it calls a “safe harbor” method that allows you to measure the square footage of your business space and apply for a deduction.

The move comes at a time when the use of homes for work is soaring, thanks to technologies such as high-speed Internet and Skype. Last October the Census Bureau estimated that as of 2010, the last year when data were available, 13.4 million Americans were making some type of business use of their homes, and that home businesses employed nearly 10 percent of all workers. During the same year, the IRS says 3.4 million taxpayers filed for the home office deduction. The sheer size of the gap raises the question: Are millions of people declining to seek write-offs for which they’re qualified?

Kristie Arslan, president and CEO of the National Association for the Self-Employed, thinks so. The IRS rules for home offices have been “cumbersome and time consuming,” she said, “. and year after year hard-earned dollars were left on the table.” Otherwise qualified business owners and entrepreneurs were daunted by the record-keeping and paperwork required. They also worried that they could be exposed to an audit by the IRS if they made mistakes in filing.

The new IRS option plan, which will be available for 2013 and beyond, allows owners and employees who work from home to deduct $5 per square foot of home office space per year, up to a maximum allowable space of 300 square feet. The write-off is capped at $1,500 per year, but the hassle factor is negligible.

Here’s how it works. The Internal Revenue Code permits you to deduct expenses for a home office that is used “exclusively” and on a “regular basis” as your principal place of business “for any trade or business,” or as a place to meet with clients or customers. Provided you qualify on these threshold tests, the code allows you to deduct mortgage interest, property taxes, rent, utilities, hazard insurance and other expenses based on the percentage of the total space of the home that is attributable to your business use.

Though this method can produce sizable deductions, critics have long argued that the computations for some of the allowable items – depreciation on the house you own is one – can be tricky and require significant record-keeping and time expenditures to get it exactly right. Plus the IRS has acknowledged that the presence of a home office deduction on a taxpayer’s filing may increase that taxpayer’s potential for being selected for audit.

The new streamlined approach essentially boils everything down to just one measurement: How much square footage that qualifies for business purpose treatment are you using? Multiply that number by $5 per square foot and you’ve got your deduction amount. As long as this does not exceed $1,500, you can use the new short form write-off. If the total is more than $1,500, you can use the more complicated option, which is spelled out in IRS Form 8829 and available at IRS.gov.

The pros and cons of the new option? Abe Schneier, senior technical manager for taxation at the American Institute of Certified Public Accountants, says it should be a money-saver for small-scale enterprises and startups. “Anybody who’s going to start a new business working from home will probably find this a great advantage,” he said in an interview.

On the other hand, owners whose operations require large amounts of space and who have sizable utilities, insurance and other expenses probably will want to stick with the traditional method – complicated though it can be – because it can yield them much higher write-offs.

So take a look at how much time you’re spending on business work in your home, review the basic rules outlined in IRS publication 587, “Business Use of Your Home,” and go with the smarter option for your situation.

Second CFPB Fight May Be Just as Contentious as First

By Joe Adler

JAN 24, 2013 5:18pm ET

WASHINGTON – Here we go again.

Richard Cordray was reintroduced Thursday as the administration’s long-term choice to run the Consumer Financial Protection Bureau, but huge questions remain over whether his second nomination for the job is any more likely to be approved than his first.

Immediately out of the gate, Republican leaders – still fuming over Cordray’s recess appointment a year ago – challenged the move. Their position appears identical to when, in May 2011, Republicans mounted a campaign to block any potential director to run the bureau – including both Cordray and CFPB-architect Elizabeth Warren – unless the administration supported reforms to its structure. Those included establishing a commission to run the agency.

“Today’s decision to renominate Richard Cordray to be Director of the Consumer Financial Protection Bureau after using an unconstitutional recess appointment is premature, given the outstanding concerns about the bureau and the legal challenge to the recess appointment,” Sen. Michael Crapo, R-Idaho, the new ranking member on the Banking Committee, said just moments after Cordray’s re-nomination was announced. (President Obama also announced the nomination of former prosecutor Mary Jo White to head the Securities and Exchange Commission.)

“Until key structural changes are made to the bureau to ensure accountability and transparency,” Crapo added, “I will continue my opposition to any nominee for director . If the president is looking for a different outcome, the administration should use this as an opportunity to work with us on the critical reforms we have identified to him.”

House Financial Services Committee Chairman Jeb Hensarling, R-Texas, echoed that sentiment, saying he hoped “the decision to re-nominate Mr. Cordray will open the debate about whether some common sense checks and balances will be placed on a massive bureaucracy that is now totally unaccountable to the American people.”

Still, some believe Cordray’s renomination for the job may draw more support than the administration’s first attempt to get him confirmed in 2011, with a few political factors changed and positive reviews of Cordray’s performance since he was installed a year ago through a controversial recess appointment.

“It’s a new day,” said Camden Fine, president and chief executive officer of the Independent Community Bankers of America. “I don’t think this is going to be a walk in the park, but I certainly think that Mr. Cordray will get a fair hearing. I don’t think that the criticism will be as harsh as it was last time around.”

To many, the nomination was surprising. Cordray had given numerous signals he was not interested in a long-term slot and wanted to return to Ohio – where he was the attorney general – after his recess appointment expires at the end of this year to run for governor. Focus instead had shifted to who would succeed the outgoing Raj Date as the CFPB’s deputy director. (By statute, the agency’s No. 2, who does not need Senate confirmation, would automatically become the bureau’s interim leader after Cordray’s recess appointment expires.)

But some said his renomination may reflect Cordray’s desire to make a more lasting imprint on the still-young agency.

“I wasn’t sure he wanted to stay in Washington” but “he may feel that since he started the job that he wants to see it through,” said Jeffrey Taft, a partner at Mayer Brown. “He was responsible for getting the agency going, and now he can try to leave a lasting mark.”

In his press conference, Obama said Cordray has “proven to be a champion of American consumers.”

“Richard has earned a reputation as a straight shooter and somebody who is willing to bring every voice to the table in order to do what’s right for consumers and for our economy,” Obama said, adding that the Senate should confirm both nominees as early as possible. “Richard’s appointment runs out at the end of the year and he can’t stay on the job unless the Senate finally gives him the vote he deserves. There’s absolutely no excuse for the Senate to wait any longer to confirm him.”

Republicans in the Senate still control enough seats to stop any nomination, but Democrats did gain two seats – including the one now occupied by Warren, who will sit on the Banking Committee. Meanwhile, it is unclear exactly how aggressive Crapo intends to be, whereas his predecessor as the panel’s ranking member, Alabama’s Richard Shelby, has been one of the bureau’s most vocal opponents.

Gil Schwartz, a partner at the law firm Schwartz & Ballen, said Obama’s reelection leaves Republicans with less political room to fight the nomination.

“It’s hard to deny the president a nomination under the circumstance,” he said. “I don’t think it’s business as usual for Republicans. I think they do recognize that sentiment has swung toward his side and the CFPB isn’t going anywhere.”

Others said while the bureau has accelerated the flurry of rulemakings affecting mortgages and other areas of the consumer financial markets, the CFPB has won credit from many in the industry for taking a more measured approached than was expected. Cordray is seen as wanting to listen to bankers’ concerns.

“The CFPB has been very deliberative,” said Ronald Glancz, a partner at Venable. “They’ve listened to a lot of voices. They’re very open and transparent in terms of the way they’ve gone about their rulemaking. I think Cordray will certainly get credit for that and they’ve taken the middle of the road in many cases.”

But the apparent position of GOP leaders not to budge from their earlier position poses significant obstacles, prompting some to question why exactly Cordray was renominated without any discussion about potential changes to the CFPB’s structure.

“I have a hard time thinking the way the process was done that somehow Republicans are going to be a lot more amenable then they were before,” said Mark Calabria, director of financial regulation studies at the Cato Institute and a former Senate Banking Committee staffer. “I think one of the reasons for [President Obama] to send this nomination up is purely politics – ‘Let’s have a fight to illustrate that I care about consumers and Republicans don’t.’”

He added that, after Republicans aired their initial concerns about the bureau’s single-director leadership, Cordray’s recess appointment only stirred the pot further.

“The process of his [first] nomination still irked a lot of people in the way it was done,” Calabria said. “Before, he could come in almost on a clean state, but any sort of nomination hearing is going to be about not only what CFPB has done but about the nature in which he was appointed.”

Meanwhile, there are still signs many in the industry have concerns.

Richard Hunt, the head of the Consumer Bankers Association, told reporters that, while he has found Cordray to be “very accessible [and] mostly fair”, the CBA still believes the bureau should be led by a commission instead of a single director.

“We are one rule from bringing the financial markets into chaos, which is much more likely to happen when you have a sole director versus a commission,” Hunt said. “This is time that the Senate takes a pause, reflects and tries to save itself from itself, and have a commission, not a sole director.”

Hunt said he expects the renomination to spur talks of a compromise involving the administration removing its opposition to a CFPB commission in exchange for a confirmation vote on Cordray. “You will start seeing some discussion of a possible confirmation in return for a restructuring,” he said.

But Taft said that was unlikely. “Both Obama and the Democrats have seemed to communicate that that is not on the table,” he said.

Fine said the environment has significantly changed since the first time Cordray was nominated.

“It’s a different time now than when he was first nominated. The CFPB has a track record. By any objective standard, the bureau has been more measured in its approach than a lot of people thought it would be,” he said.

“There are still some rules that ICBA still has concerns about. That said, it could have been a lot worse. From the standpoint that the bureau does at least seem to be listening, particularly to community bank concerns, that is very encouraging to us.”

Spring comes early for U.S. real estate

Many more people are shopping for homes than is typical for the winter months

January 18, 2013 12:00PM

By Kenneth R. Harney

Could we be looking at an early spring this year – not in meteorological terms but real estate? Could the chilly December to February months, which traditionally see fewer buyers out shopping for houses compared with the warmer months that follow, be more active than usual? And if so, what does this mean to you as a potential home seller or buyer?

There is growing evidence, anecdotal and statistical, that there are more shoppers on the prowl in many parts of the country than is customary for this time of year, more people requesting “preapproval” letters from mortgage companies, more people visiting websites offering homes for sale, and more people telling pollsters that they expect home prices to continue rising and that the worst of the housing downturn is long past. There is even data showing that during holiday-distracted December, there was a jump in visits to homes listed for sale.

Coldwell Banker, one of the largest brokerages in the country, says traffic to its listings website was up 38 percent during the past month, compared with year-earlier levels. ZipRealty, an online brokerage based in Emeryville, Calif., reports that its website has seen an unusual 33 percent increase in home shoppers in the first half of January compared with December.

Redfin, a brokerage with headquarters in Seattle, found that even during the week of Dec. 30, shoppers requesting home tours by agents jumped 26 percent over the four-week average, and 9 percent compared with the same week the year before.

Economists at the National Association of Realtors report that foot traffic at houses listed for sale in well over half of all markets around the country was higher this past December than the year before. Given the strong December reading, says Paul C. Bishop, vice president for research at the association, sales in the coming weeks should be “robust.”

Even in markets that typically hibernate until the snow melts, there are indications of an unusually early start to the 2013 season. Joe Petrowsky, president of Right Trac Financing Group, a mortgage company near Hartford, Conn., says he has received a much higher volume of requests for “preapproval” letters – which tell sellers that a purchaser is qualified for a mortgage loan – compared with what’s typical at this time of year.

“I’m seeing twice as many buyers this January as last January,” Petrowsky said in an interview. “People have finally figured out that prices are moving up, interest rates are really low, and they don’t want to miss out on the opportunity.”

In the Washington, D.C., area, Long & Foster Real Estate, the country’s largest independent broker, reports strong “signs that we are going to have an early spring” in terms of home sales. In an unusual occurrence for January, according to Steve Wydler, a Long & Foster agent in Northern Virginia, “multiple offer situations are becoming increasingly common, with prices being escalated above asking price.”

Gretchen Castorina, an agent with brokerage firm Allen Tate in Chapel Hill, N.C., says “spring started last month” in terms of new clients and multiple-bid competitions. Even in the dark final days of December, Castorina says she was busy. “I was showing houses on Dec. 31,” she said, and wrote a contract for purchasers just before Christmas.

Jo Ann Poole, an agent with Simi Valley Real Estate outside Los Angeles, says that for a variety of reasons “in the last 10 days people have figured it out,” and are making real estate moves that might have normally been pushed back into the spring months.

Polling by Fannie Mae, the government-backed mortgage investor, may shed some light on what’s motivating buyers. In a survey of 1,002 adults in December, Fannie found the highest share of consumers in the survey’s 2-1/2 year history who expect home prices to rise during the coming 12 months. Forty-three percent expect mortgage rates to jump and 49 percent believe the cost of renting will increase.

Roll all this together, says Doug Duncan, Fannie’s chief economist, and you can see why consumer sentiment “could incentivize those waiting on the sidelines . to buy a home sooner rather than later” – pushing spring behavior into mid-winter.

What’s missing from this equation? More owners listing their homes for sale. Inventories of available homes are down in most markets, mainly because many sellers are under the impression that it’s still a buyer’s market filled with lowballers who won’t pay them a fair price. In many parts of the country, that is last year’s news. In 2013, it’s simply no longer the case.