There’s an old saying about the dog that caught the car: They don’t know what to do next. Let me tell you the case of the dog that caught the Consumer Financial Protection Bureau.
Russ Vought is an own-the-libs kind of guy, an ideological warrior who delights in watching the world burn. Shutting down the CFPB is his idea of paradise; now the rugged capitalists can get back to work making America great again without interference from meddling bureaucrats determined to punish success.
Then he heard about the APOR tables.
APOR stands for the “average prime offer rate,” and it’s a little tool that keeps the mortgage market running. It involves public servants, every week, going in and calculating it. Those staffers work at the CFPB, and if they’re locked out, you have no APOR tables. And over time, if you have no APOR tables, you have no mortgage market, or at least an uncertain and economically damaging mess.
In the face of this, tough guy Vought blinked, and in so doing revealed why even the most John Galt-ian banker needs the government every now and again.
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Let me explain: In the 2008 financial crisis, mortgage lenders signed up anyone who could fog a mirror for a loan. As a result of this mountain of fraud and the dire consequences, the Dodd-Frank Act set up a standard for mortgages, requiring lenders to verify the ability to repay.
There is an exception to this rule for so-called “qualified mortgages” (QMs), which are considered compliant with the ability to repay standard. Lenders who offer QMs do not have to show their work of determining ability to repay and cannot be sued if the loan goes bad.
What’s critical to being designated a qualified mortgage? APOR. The interest rate on the loan must be within a narrow bound that doesn’t exceed APOR by a certain level. This keeps some of the more exotic loans out of the market, because of the regulatory burden and litigation risk. It has worked tolerably well since the crisis.
Of course, knowing what interest rate to offer to qualify for QM rules is a moving target: The average mortgage rate changes, and someone has to calculate it, so everyone in the market knows what is covered. Secondary-market mortgage purchasers, the lifeblood capital providers for the mortgage industry, need to know what mortgages are QMs as they are doing the purchases. If they are unsure, they could balk at making mass purchases, and that could seize up the entire mortgage market.
You know who makes sure that doesn’t happen? The CFPB.
The agency updates the APOR tables every week, using survey data for eight different mortgage products. The survey data comes primarily from Freddie Mac, one of those secondary-market giants. But it’s CFPB’s job to manually calculate and publish the APOR tables to keep the mortgage market humming. (Under Rohit Chopra, CFPB actually strengthened reporting of the APOR tables with a new methodology that was more redundant and less susceptible to the failure of outside providers to send the data.)
Yesterday, I started hearing from people worried that with the CFPB in shutdown mode, they wouldn’t publish the APOR tables. Per the statute, lenders could use the last published rate as a guideline in the short term, but if mortgage rates rose, those would quickly become obsolete. They could try to calculate APOR themselves, but that might not have any legal sanction.
Georgetown Law professor Adam Levitin explained the stakes in a post late Monday night. Lenders would either not make loans at risk of coming in above APOR, or would raise rates on loans below APOR to compensate, costing borrowers potentially tens of thousands of dollars in financing. Home values could get skewed, and credit access could be cut for many borrowers. “In other words, shutting down the CFPB does not reduce regulation. It actually increases it because it results in the [APOR tables] being miscalibrated,” Levitin wrote.
So I asked CFPB whether their stop-work order covered the APOR tables. Spokesperson Rachel Cauley got back to me: “Yesterday, CFPB Chief Legal Officer Mark Paoletta directed Jason Brown, the Assistant Director of Research at the CFPB to continue all necessary functions, including the publication of the APOR on a weekly basis indefinitely.”
Contrary to the timing professed by CFPB, sources tell the Prospect that as of Tuesday morning, the individuals who calculate and publish the APOR tables hadn’t been carved out from the stop-work order. So this came together fairly quickly.
And it’s an example of the importance of small details in markets, and government’s role. Regulation is essentially setting the rules for structuring markets. They can be used to promote fairness, competition, or maximum profits; they can guard against risk or nudge participants toward aggression. In the hands of self-interested actors, markets are structured to their advantage; this is regulation by the C-suite. But democratic regulation has a greater interest in mind. Something tiny like publishing the APOR tables is a big part of that; ultimately, that procedure is about making sure there aren’t insane loans floating around of the kind that crashed our economy in 2008.
APOR tables don’t show up on a to-do list for the lords of deregulation. They are moving fast and breaking things, and they don’t even know when they are getting close to the support beams that uphold the entire economy. And when they find out, they quietly put those beams back in place.
Other small details at the agency keep moving forward. For example, the bureau’s consumer complaint database hasn’t been shut down. People can still file complaints, and the automated process that responds and shares with other regulators is still operative. The database of complaints remains active as well. At least someone in charge recognizes that shutting down the database would make it harder to identify patterns and would close off what has been a valuable service to millions of ordinary people.
I’m not going to wear a smiley face here. The CFPB’s heads of supervision and enforcement just resigned today, and it’s not because they think the agency will miss them so much that they’ll beg for their return. They know that the next four years will feature the bare minimum, if any, supervision and enforcement, even under the best possible scenario where lawsuits are won and everyone goes back to work. This is going to be four years of open season on consumers, and it’s particularly dangerous because tech platforms want to transform the financial services sector with lightly regulated offerings, from Elon Musk’s payment app to Trump Media investment products.
But the APOR tables episode reveals that even the most hardened enemy of the administrative state eventually realizes that they need it every now and again. The unlawful attempted deletion of the agency, none of which represents any structural change, is an effort to demoralize federal workers and the public, to intimidate them into getting used to life without a dedicated consumer protection agency. The problem is that even Vought understands that the agency is needed, and so should we. That’s what will sustain the fight for its survival.