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18 CFPB DIRECTOR LAUDS NEW INDUSTRY RULES Richard Cordray likens agency's 'common sense' rules to getting 'back to basics.' As the Qualified Mortgage (QM), Ability- to-Repay (ATR), and new mortgage servicing rules created by the Consumer Financial Protec- tion Bureau (CFPB) took effect last month, CFPB Director Richard Cordray addressed an audience in Phoenix, publicly lauding the new rules. Referencing Frank Lloyd Wright's common witticism, "ere is nothing more uncommon than common sense," which Cordray said, "epitomizes the heady years preceding the financial crisis of 2008," the bureau's director stressed that the new rules are a "'back to basics' approach" for the mortgage market. Under the ATR rule, lenders must do their due diligence in ensuring a borrower has the financial wherewithal to repay the loan over time. A new compensation structure for loan originators also eliminates any incentives for lenders to encourage people to take on loans with interest rates higher than they actually qualify for, Cordray said. New rules for servicers specifically address dual tracking and transparency. A servicer may not begin foreclosure until a borrower is at least 120 days delinquent and may not conduct a foreclosure sale "until all other available options have been considered" if a borrower applies for loss mitigation, Cordray explained. Additionally, each month, servicers must send borrowers comprehensive statements that detail loan balance, escrow account balance, interest rate, and information on how payments are attributed. Addressing the new mortgage servicing rules, Cordray said, "In short, our rules mean simply that mortgage servicers must now do their jobs." He continued, "It may seem silly that we need rules to tell servicers to answer the phone; not to lose people's paperwork; to tell borrowers how much they owe. It might also seem silly that we need a rule telling lenders they must pay attention to whether borrowers will be able to repay the money that is lent to them. But we have lived through the financial crisis. We have seen with our own eyes the grave dysfunctions in the mortgage market. ere was an embar- rassingly long list of things that should have happened but never seemed to happen. Our new rules are aimed at setting things right again." Cordray also addressed concerns that the new industry rules will be cumbersome or serve as an impediment to the market. "On the contrary," he said, "these measures are not new at all. ey are exactly what good community banks and credit unions have been doing for many, many years." SHRINKING SHADOWS Industry's shadow inventory is the smallest it's been since August 2008. e industry's shadow inventory of homes with mortgages 90 or more days delinquent, in foreclosure, or held as REO by mortgage servicers but not currently listed on multiple listing services (MLSs)—also known as pending supply—stood at 1.7 million as of October 2013, according to CoreLogic. e supply of homes hidden in the shad- ows carries a value of $256 billion and is at its lowest level since August 2008, the company reports. Turn back the calendar 12 months, and those numbers were significantly higher. In October 2012, there were 2.1 million homes in shadow inventory with a value of $348 billion. e asset count of shadow inventory homes declined 24 percent, while the dollar amount attached to the industry's hidden inventory dropped 26.4 percent in one year's time. "e shadow inventory continues to decline," said Dr. Mark Fleming, chief economist for CoreLogic, "decreasing at an average monthly rate of 46,000 units over the last year." According to Fleming, a healthy market hides around 650,000 housing units in its shadows. "[T]here is more to be done, but the trend is in the right direction," he said.

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