Oh Russell Vought must think he’s so clever bankrupting the CFPB by asking OLC for an opinion letter saying that the Bureau can’t draw funds on the Federal Reserve System when the Fed isn’t running a profit. After all, killing off the CFPB has been his goal all along.

But Vought seems to have forgotten a lesson he learned during his first attempt to shutter the CFPB: doing so could crash the housing market.

Nine months ago I posted about how the CFPB publishes an index called the Average Prime Offer Rate (APOR) that is critical to the operation of the mortgage market. Federal law prohibits making mortgage loans without consideration of ability to repay. The CFPB’s QM Rule provides a safe harbor to that prohibition, but the QM Rule is keyed to the spread of the annual percentage rate on the mortgage over the Average Prime Offer Rate. If the APOR isn’t updated it’s a problem for the mortgage market. Lenders can keep relying on the last published APOR, but if rates should rise, then they will soon start to have spreads that exceed the safe harbor. The CFPB can’t update the APOR if it isn’t operating.

Without the APOR updates, mortgage lenders risk being out of compliance with the ability to repay requirement, but the fact that the CFPB won’t be operating won’t get them out of liability: the ability to repay rule is enforceable by state attorneys general and can be raised as a defense (by way of offset) against foreclosure by consumers.

The APOR is just one of a number of regulations that the CFPB has to update periodically. Others involve inflation adjustment of dollar thresholds. That includes everything from the Reg CC funds availability (how much money is available in your account when you make a deposit and when) to the points-and-fees threshold for HOEPA loan status (i.e., more loans will become heavily regulated HOEPA loans without updates).

Now, I suspect that Vought’s real game is to cripple the Bureau to force Congressional Democrats to agree to a wholesale legislative remake of its structure, resulting in a toothless for-show agency, and that he’s fine with a total lack of regulation as a fallback. And in a falling rate environment he might have some time before the APOR blows up on him. But the second rates start to go up, Vought’s going to have created serious economic chaos with a political cost for the Trump administration that exceeds whatever sadistic own-the-libs pleasure he gets out of killing off the CFPB.