Consumers need more protectionby Peter Miller
The newly-formed Consumer Finance Protection Bureau has come out with an agenda of sorts–the goals it sees for itself to better the mortgage marketplace.
Here are the three central concepts which the CFPB outlined:
1. “People should be able to know before they owe. More paperwork doesn’t mean better disclosure.”
I would seriously doubt many people have any clue as to the actual content of their loan documents or settlement papers.
For instance, let’s say you were an attorney AND the Secretary of Housing and Urban Development. Surely you would know about the paperwork you’re signing.
Mel Martinez, a former HUD Secretary and Florida senator has said:
“You know if I’m a lawyer and the secretary of HUD and I’m not reading this junk, you know there’s work’ to be done fixing the system.”
Former HUD Secretary Alphonso Jackson said:
“I’m an attorney and I’ve had eight houses and I didn’t read all that mess. If I didn’t read it–and I doubt anyone around this table read it–then we can’t hold people responsible for not reading every line when they were closing their loan.”
So yes, if highly-trained HUD secretaries and law school graduates can’t read loan and closing information, then plainly we have a paperwork problem.
We also have lenders, lawyers, local governments, brokers, and other stakeholders at closing who want to protect their particular interests. The result is that paperwork is complicated because there are many players in the game, not because there’s a plot to make the paperwork more complex.
To clarify the paperwork, the CFPB will need to work with a variety of special interests, some of which are hostile to its very existence.
2. Common-sense rules can prevent bad practices from harming consumers.
No, actually they can’t.
To have common-sense rules you first have to have common sense, and that’s not the motivating factor when it comes to mortgage rates or loan programs.
Instead, the question is how do we maximize profits? If that means we can make more money by offering option ARMs, interest-only financing and no doc loan applications, then common sense doesn’t count–at least in the short run.
To make the mortgage system work you have to remove every possible loophole and option to assure some new abuse does not sneak through.
3. The rules of the road should apply to everyone–and they should be consistently monitored and enforced.
To believe that what’s good for the goose should also be good for the gander makes perfect sense in lending.
Both borrowers and lenders should play by the rules. However, mortgages are literally written in the lender’s usual form, an expression which means the lender gets to make the rules. If you don’t like the lender’s usual rules you can go elsewhere for a loan and similar mortgage rates.
The CFPB is bringing marshmallows to a street fight
Instead, it needs to get tough and set out rules that openly and plainly protect borrowers. And if those rules are not perfectly balanced, who cares? Borrowers need every edge they can get when sitting down with lenders–the only people at the table who actually know what’s going on.