Gee, You Mean that You Would Freeze the Mortgage Markets?

Russell Vought, one of the chief architects of Project 2025 and OMB director, shut down the US Consumer Financial Protection Bureau (this has been stayed by a judge), sending everyone home and literally locking the doors on their offices.

In fact, he went so far as to set up a snitch line for people who were doing work. (Some government efficiency, huh?)

Well, now he has had to back track a bit, because otherwise, mortgage markets in the US would have completely frozen up:

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.

Following the 2008 mortgage meltdown, regulations were passed that required that lenders do due diligence to ensure that the loans that they made could be repaid.

While this would to be banking 101, don’t lend to people who cannot pay you back, before and during the financial crisis lenders were making loans almost certain to go bad, and then reselling them to useful idiots investors, so a decision was made to require lenders to show that they had done their homework.

Well, they had to do their homework unless the loan was “Qualified”, which in this case means not high interest.

The question, of course, is what is meant by, “High Interest?” In this case, it means not much above the APOR, and the APOR is calculated weekly by, you guessed it, the CFPB, which means that by shutting down the CFPB, mortgage lending will become far riskier and far more complex for the lenders. This would mean that we would see less of it, a LOT less of it.

………

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.”

The dirty secret of the free-market mousketeers is that markets they laud as the alternative to government cannot function without extensive government support, even in Russell Vought’s fever dreams.