Last May, on the heels of the CFPB’s appropriation case being upheld by the Supreme Court,[1] I agreed with the Mortgage Banking Association’s CEO, Bob Broeksmit, about the inefficient, overlapping, and contradictory regulatory and GSE[2] investor driven requirements facing the mortgage lending industry. Broeksmit had called it “the Regulatory Knot” and suggested a national housing czar[3] was needed to coordinate all of these rules . Broeksmit noted that the CFPB and GSEs were at the center of the knot.
My post called it “The Gordian Regulatory Knot” which, after the funding case had been decided, began with a foolish jinx by saying that the “CFPB is here to stay.” Further foolishly and apocryphally,[4] I offered the metaphorical solution of how the impossibly tied Gordian Knot was ultimately “untied” in the ancient Greek legend. That is, rather than carefully unwinding it, Alexander the Great simply whacked the Gordian Knot open with his mighty sword.[5]
Elon’s Chainsaw
Fast forward to today with the Regulatory Knot (at least on the federal level) being “untied” by Elon Musk (the “Great?”) with a chainsaw[6] through the Spirit of DOGE:[7] a once seemingly intractable problem “solved” by exercising sheer brute force.[8] As I cautioned in my post last year, however, placing power in a single person can cut both ways and the adage of “be careful what you wish for” still most certainly applies.
As I noted in my last Musing post, I am not a daily news reporter and the CFPB situation is changing by the minute. You can read Rob Chrisman’s Commentary for free[9] housing related news on a daily basis and informative thought leadership[10]summaries of the current situation. But, again at the risk of being out of date upon publication, and without having any insider information, here are my thoughts on what I am observing happening with the CFPB in Trump 2.0 and what may happen next.
Two things happening at once at CFPB
There seem to be two approaches to the CFPB in the Trump 2.0 Administration operating at the same time. One is the Elon Musk/DOGE burn it all down mentality. DOGE has a simple directive for the CFPB: “you are deleted”. OMB Director Russel Vought (who is the official current interim CFPB Director) seems to agree fully with this approach. Simultaneously, there appear to be others in the administration who recognize that “deleting” the CFPB is not as simple as firing all the employees and that there are legal obstacles to shuttering the agency beyond locking the doors to the building.
To address that concern, Vought has placed former FHFA Director, Mark Calabria in charge as Vought’s deputy to run CFPB until the permanent director can be installed. Calabria is a noted libertarian who, as FHFA Director, sought to release the GSEs from their now over 15 years of federal government conservatorship. Calabria, a career DC insider and academic, has a full grasp of how the federal government and Constitution work. He presents a stark contrast to Musk’s tech-bro executive outsider, yet also libertarian perspective. Both guys are limited government zealots (just like me!), but each has a different approach to accomplishing the objective. On the one hand, you have the Musk/DOGE “chainsaw” approach to achieving limited government, and, on the other, you have a recognition that the constitutional rule of law (and norms of comity) will not allow for a unitary executive to simply eliminate an independent agency and the laws it is charged with enforcing.
McKernan nomination
Meanwhile, the Trump administration nominated a serious, qualified, and experienced regulator, Jonathan McKernan, for the position of CFPB Director. Facing a contentious nomination hearing with Democratic Senators[11] on February 27, 2025, McKernan offered the same perspective I have lamented too many times to count in these Musings; namely, that CFPB, “pushed beyond the limits of its statutory authority” and “offended our basic notions of fairness and due process when it has regulated by enforcement.” McKernan, no doubt, is fully aware that the culture of the CFPB needed to change to serve all American consumers and financial service markets instead of overly focusing on protecting and subsidizing the narrow political and redistributive goals of equity and poverty reduction for a small percentage of people. Yet, McKernan also testified that he will “fully and faithfully” enforce laws related to the CFPB and spoke in terms of “right sizing” instead of deleting the agency entirely. His nomination is supported by most major housing trade associations and seems assured of being confirmed by the Republican controlled Senate.
Reconciling two approaches to limited government
How do these two approaches get reconciled to enable the CFPB to move forward? Here is my best guess: First, we will watch them burn it all down with Elon’s chainsaw providing the imagery.[12] Not only is the CFPB office building basically shuttered (and likely to be repurposed or sold) and its employees been told to stay home and do nothing,[13] but even while McKernan was testifying, the CFPB dropped virtually all of its pending enforcement cases.[14] This includes the RESPA case against Rocket and Jason Mitchell I just discussed in December. I know I will regret the foregoing paragraph’s newsy information drop, because by next week this will all be last week’s news and we will be on to something different.
Again, just my speculation, but after the complete dismantling, essentially, McKernan (and Calabria?) will be tasked with building the CFPB back up from scratch with an entirely new culture and mission. To be clear, not everyone at CFPB was a dogmatic consumer and poverty advocate driven exclusively by allegiance to Elizabeth Warren, advancing critical race and legal theory, and/or relishing use of the massive power of the federal government to bully individuals through enforcement to achieve policy goals.[15] But using a chainsaw, you will throw out a lot of babies with the bathwater and changing a culture is perhaps an impossible task. So, rather than ferreting out and eliminating inefficiencies or unnecessary functions in the existing agency (fighting institutional and cultural resistance along the way), it will all be gone and only when industry or consumers demand they need something will the new CFPB minimally resurrect it in an entirely new cultural framework. To illustrate,
· Industry is screaming about not having APOR.“Ok, that’s just a calculation that is easy to issue.”
· A court says you can’t fire everyone. “Ok, so they aren’t fired, but they can’t come into the office or do anything much until the appeals process plays out.”
· Consumers are going to be up in arms because they don’t have a database where to file complaints. “Well, we’ll see when that consumer outrage happens or we get a court order.”
· Not enforcing the LO Comp Rule? “Ha. No one is going to complain about that. We’re going to repeal that.”[16]
· How about fair lending disparate impact and HMDA?“Do those still make sense in light of executive orders and general hostility to DEI in the federal government and recent SCOTUS decisions like the Harvard admissions case?”
Untying the Regulatory Knot?
McKernan’s list of to-do’s will continue to grow, but it will be starting from zero as opposed to moving down from the 1000’s. Expecting Congress to act on its own to reform or eliminate the CFPB seems unlikely, but, as required to comply with the rule of law, I expect McKernan’s team will quickly move beyond unitary executive action alone. McKernan’s job, it seems, will be to create durable changes through the painstaking process of untying and unwinding the federal Regulatory Knot in ways that will be enforced by the courts and not simply be reversed with a new election’s results. I wish Mr. McKernan much success as he seeks to retrieve any babies lost with the bathwater disposal and given my priors, I hope he can accomplish durable change through customary regulatory processes.
[1]That timing was also on the heels of the 2024 MBA Legal Issues Seminar in San Diego. I will be speaking again at the 2025 MBA LIRC in San Diego (again) on May 14-17 on a “current events” panel with nationally recognized mortgage banking attorneys, Mitch Kider, Jeff Naimon, and Kari Hall . We won't be short for discussion topics.
[2]GSE stands for Government Sponsored Enterprises and refers to Fannie Mae, Freddie Mac, FHA/GNMA and Federal Home Loan Banks. The key word there is Government.
[3] “Czar” would be an incredibly poor choice of words today for at least two reasons. Specifically, Broeksmit called for a National Housing Policy Director.
[4] Foolish for daring fate on what we are seeing today, and apocryphally because the whole legend of the Gordian Knot is dubious. Then again, it does seem an apt metaphor for the federal government.
[5] It is unclear who exactly is calling the shots in this administration, but the image of Elon Musk with a chainsaw resonates close enough to Alexander the Great with a sword for me.
[6] I feel bad for this great guy from the housing industry who was known as the chainsaw guy who has just had the association with chainsaws and the valor he earned by helping hurricane victims sort of stolen. Elon's chainsaw was a gift from Argentine President, Javier Milei, another noted libertarian.
[7] I often refer to the spirit of DOGE rather than DOGE because it is the idea of limited government that I appreciate, not the way the current administration is going about making that happen. As I noted in one of my emails, as a kid, when people asked me if we celebrated Christmas at my house, I responded, “No, but we celebrate the spirit of Christmas.”
[8] A close friend and neighbor who is CEO of a large multinational corporation has a penchant for using “the brute force method” to fix minor problems, such as household repairs. I suspect he rarely uses it professionally for large complex issues.
[9]Other excellent daily news outlets such as Housing Wire and National Mortgage News charge a subscription fee.
[10] Some of this thought leadership, while informative and well written, may lack the personality, perspective (and footnoted fun) of posts written by this particular human.
[11] Several Democratic Senators at the hearing seemed to think that redistributing wealth was the CFPB’s most politically salient talking point because it had obtained billions in consumer redress. I don’t know about the equity of any particular redress provided by the CFPB to alleged consumer victims, but wealth redistribution should be the role of Congress. Of course, even without the CFPB, we still have the plaintiff class action bar and state regulatory and enforcement authorities to obtain consumer redress for victims and hold lenders accountable to the law.
[12] Totally unimportantly, I imagine a hundred years from now future Americans are going to remember Elon (the Great?) and his chainsaw in the same way we remember David’s slingshot (the ancient legendary slingshot he used to kill Goliath-not the current Israeli defense system so named). In my imaginary future, with an AI dominated public sphere with abundant energy powered by clean fusion (on Mars?), government will operate with laser efficiency simply by asking AI to fix things instead of using a crude and violent chainsaw image (or the brute strength method noted in footnote 8 above). Like a slingshot is today, the chainsaw image will not be that of a powerful destroying implement, but rather a virtually useless and childish weapon that in hindsight seems almost incapable of defeating anything. If you read this far into this footnote, my apologies for that indulgence of my random thoughts.
[13] The person(s) who issues the Average Prime Offer Rate (APOR) seems to still have a job. APOR is a benchmark rate used in mortgage lending to reflect the average interest rates, points, and other loan pricing terms offered to prime borrowers. The APOR is calculated based on market data provided by a private data provider and published weekly by CFPB. It is important to compliance with TILA for mortgage lenders. The freakout over who would issue the APOR in the absence of the CFPB (amid virtually no other freakouts outside of CFPB employees themselves and Elizabeth Warren) might have only served to prove that everything else the CFPB does is really not all that necessary to the functioning mortgage market. As I have noted previously, cuts at the GSEs would likely be a very different story.
[14]The cases were dropped “with prejudice” which means the government can’t hold the case over the defendants’ heads and threaten to bring it back later. Contrast that with how the Justice Department is handling the Eric Adams corruption case in New York.
[15]See also, more recently, Ed. #84: Townstone Settles-Peak Fair Lending Enforcement? and Ed. # 86: CFPB Sues Rocket on RESPA.
[16] Y’all need a drinking game where you drink whenever I mention repealing LO Comp.
Brian Levy is an attorney with Katten & Temple, LLP licensed in Illinois and Wisconsin who writes the free Levy’s Mortgage Musings blog available at www.mortgagemusings.com. Mr. Levy can be reached by email at blevy@kattentemple.com. Mr. Levy’s blog is copyrighted and presented by Chrisman Commentary with permission. All rights are reserved.