by jbermanI’ve been a fan of Bill Kidwell & his efforts at IMMAAG for a long time. Bill & I served on the Colorado Association of Mortgage Brokers (CAMB) board back in the mid 2000’s. In fact, the first mortgage registration bill for Colorado was passed when we were serving as CAMB’s President & President-Elect respectively. Bill is a tireless source of effort and passion for the small independent mortgage originator industry.
Successfully getting felons kicked out of the business in Colorado, Bill now focuses on legislative advocacy through his company, IMMAAG. IMMAAG advocates to stop unfair and unjust regulations being thrust on the small independent originator channel. I consider Bill Kidwell a top resource for analysis and commentary, especially with respect to issues like Compensation. His most recent email post is particularly good and I wanted to share it with my readers. I encourage you to join his mailing list and support his efforts. He’s one of the good guys. ~ JB
The Feds Respond and the Plaintiffs Take their Bite (Originally published Tue, Apr 5, 2011 at 10:38 AM)
Yesterday, April 4th the Federal Reserve Board Submitted Its Appeal Brief. This morning, April 5th NAIHP and NAMB submitted their response.
In the case of the Feds, if continually repeating yourself defines an effective argument, then the Federal Reserve Board has achieved an effective argument.
If on the other hand, the Court is not swayed by anecdote, supported or otherwise, and if the Court believes the facts presented by Plaintiff or questions the facts that were consistently omitted by the Board, then the Court should be swift in upholding the stay.
From the outset in 2008 when the Feds began the relentless, repetition of their unsupported opinion, they have not wavered. They have never produced any substantive proof of their allegations and have continually taken the same tack just saying its true, makes it true.
The Feds original pleadings in the matter before the court repeated the same rhetoric that they used to justify the final rule and their arguments in response to the Courts stay continues that course.
The Feds use 20% of the space allowed by the Court to argue their case to simply recite the background. Then, they remind the Court that it is plaintiffs burden to,
. . .. establish that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.
From that point the Feds begin the repetitive assertions that:
1) The Feds do have the authority under TILA 129(l), so there!
a. Even though TILA section 129 is entitled Requirements for Certain Mortgages, the Feds continue their relentless claim that this section which was added some 26 years after TILA was enacted and was added to protect consumers against high-priced mortgages somehow provides them with the authority to go beyond disclosures and to address issues they have not proven to exist at all. The argument appears to be since the Feds believe they may exist, the Feds may extend a totally unaddressed authority to cover every closed end mortgage made in the United States. Just because they believe this, they can control originator compensation. I guess that proves it! They must have the authority; they said so.
b. Then the Feds offer the most ironic support of their claim that they should be allowed to implement the rule, . . .. deference is especially appropriate in the process of interpreting the Truth in Lending Act . Unless demonstrably irrational, Federal Reserve Board staff opinions construing the Act or Regulation should be dispositive. So, the Feds claim that the 2006/2007 hearings urge the ban on yield spread even though no such remarks exist anywhere in the 1,259 pages of transcription. Their claim that 35 interviews are substantial tests proving their point; their argument that a survey of 1,008 senior citizens constitutes a rational basis on which to impose the most unilateral and onerous controls on an industry – – – is not irrational? We hope the Court considers this as they review the rationality of the Feds argument.
The Plaintiffs reply – The reply brief is direct and to the point Plaintiffs make it clear using facts citing TILA Section 129 and case law that the Board lacks authority.
2) The Feds assert that the rule is not arbitrary or capricious
a. The Board tells the Court to trust the Boards studies. The rule is based on more information that was shared or cited in the rule.
b. The Board tells the court that only originators, not creditors can hide costs to the consumer. That is why its rule is not arbitrary. It doesnt matter that YSP and SRP are derived from the same cost borne by the borrower, i.e. the interest rate. The Board simply says its treatment is not capricious. That makes it so. After all they are the Government and are owed deference even when fabricating the support for their arguments.
c. The Board basically tells the court that the Boards rule is not arbitrary because it is OK for the creditor to benefit from the higher rate and the consumer to pay more interest over a potential 30 year period, but not if that rate is offered by a broker. If that logic is not arbitrary and capricious then it is at least myopic and ill conceived. But, again, it is also nothing new and after all, the Board says its true! That makes it so.
d. The Board then says it can not be faulted about the arbitrary rule interpretation that broker originators must pay their employed originators differently depending on the nature of the transaction consumer paid versus creditor paid. The Board says no one objected to the rule in that regard. However, the Board chooses not to mention to the Court that as soon as the public was made aware of that informal, undocumented interpretation that there was a nation-wide outcry and objection. Whether that is arbitrary or capricious becomes a secondary issue to the misrepresentation which seems to underlie so much of the Feds support for the rule.
The Plaintiffs Reply Plaintiffs explain that the Board and Court are aware that consumer cost is based on the rate and that creditors and brokers both offer rates, so to control just brokers is arbitrary and capricious. Plaintiffs also argue that dismissing disclosures as a solution to the perceived issue is arbitrary and capricious.
Finally, Plaintiffs argue that the Board failed to provide any rational justification for the aspects of the rule that create different compensation requirements for consumer pay versus lender pay transactions.
3) The Board fully complied with the Regulatory Flexibility Act
a. In more of the same rhetoric, the Board simply asserts that because the final rule has captions that address the points required by the RFA that the Board has done what is necessary. The Board fails to mention that the four page compliance guide was found lacking by the SBA Office of Advocacy and that the Board did virtually noting to overcome the information and facts it was unable to uncover after determining the rule would have a significant impact on small business.
The Plaintiffs Reply As should be expected, Plaintiffs simply point out that the Regulatory Flexibility Act is not, as characterized by the Board in its response, purely procedural and impose no substantive constraint on agency decision making. but is intended to force regulators to assess at some real level the impact and when significant impact is determined to make a sincere effort to search for less impactful alternatives.
4. The Feds dismiss the idea that Plaintiffs have proven irreparable harm.
a. The Board takes the position that neither NAMB nor NAIHP have proven irreparable harm. It repeats phrases such as, the Board has found the current system harms consumers in spite of the real fact that the Board has found nothing beyond what it has fabricated or exaggerated to support its position.
b. The Board finally states that the irreparable harm done to consumers by staying the rule will exceed the irreparable harm done to brokers by denying the stay. In its typical fashion it does so by assertion, not fact-based support.
The Plaintiffs reply – Plaintiffs are brief in their response and remind the court that the Board acknowledges the irreparable harm and reasserts the basis for Plaintiffs claimed harm.
The Board closes by arguing that on balance Plaintiffs have not proven justification for the stay and that the public will be more harmed without the rule than with the rule. I guess thats the least harm argument. But the Board never explains how the reduced consumer access, inherently increased interest rates and restricted ability to compete or shop for a better deal will help consumers.
The Board appears to rest its case on the same basis that got us here We (the Board) say its true, therefore it is!
The Plaintiffs close their reply brief by using the same argument about lesser harm offered by the Board, but Plaintiffs argue that harming consumers while devastating an industry makes no sense. That is why the Court should uphold the stay.
Now we wait.
Copies of the Fed and NAIHP/NAMB replies are available on the IMMAAG website at www.immaag.com