Mortgage Industry Gong Show: Hasty Rule-Making Creates More Confusion
Treasury has a new blog channel called “Treasury Notes”. </p
Get it? </p
“Notes” as in T-Notes or the debt instruments issued by the U.S. government that pay a fixed rate of interest every six months until maturity, which can range from 2 to 10 years. Clever right? </p
Yesterday they published the first of a series of five question interviews with senior Treasury officials. This week their guest was Elizabeth Warren, who serves as a Special Assistant to the President and is the lead administrator of the new Consumer Financial Protection Bureau (CFPB). This is of special interest to mortgage professionals because the CFPB will play a key role in restructuring (again) the mortgage application proces. </p
This is what Elizabeth Warren had to say…..</p
1) With hundreds of problems in the consumer financial products and services marketplace that the CFPB could chose to focus on, how do you decide where to dive in and begin? What have your top priorities been out of the blocks?</p
Credit cards are a top priority because they are the most widely held credit product in the country. Four out of five families have a credit card and 50 million American families cannot pay off their credit card debt each month in full.
Mortgages are the other top priority because they are the single most important financial decision that most families will make. We have learned from recent history that a bad mortgage can not only destabilize an entire family, but that enough of them can destabilize the entire economy.
2) You frequently cite streamlining disclosures as a way to level the playing field and give families better tools to make the choices that are best for them. When will consumers start seeing a difference?
Consumers can already see a difference. Look at what the banks are advertising right now and see how often phrases like “simplicity,” “no tricks” and “clarity” are showing up. The industry recognizes that these consumer credit markets have to change.
3) Your first week on the job, you and Secretary Geithner held a mortgage disclosure forum at Treasury and just this week, the CFPB implementation team held a follow up symposium. What have you learned from these sessions?</p
The current disclosures increase costs for lenders while providing very little benefit for consumers. We want to reverse that and decrease the costs of disclosure while increasing the value to consumers. The way to do that is to make that disclosure clearer and more usable for consumers.
4) You’ve spoken a lot about how the consumer credit market is “broken.” How do we know the market isn’t working and what can the CFPB do to fix it?</p
When a family cannot tell the cost in full of a credit card, when it is not possible to determine the risks of a mortgage in advance, and when people can’t directly compare three or four products– apples to apples – to tell which costs the most and which bears the most risk, then the market is broken.
This agency will drive toward making the costs clear, making the risks clear, and making it easy for consumers to compare one product with another. When they can do that, credit markets will work for families.
5) What roles will personal responsibility and financial education play in the consumer credit market once the CFPB is stood up?</p
I believe in personal responsibility, but it only works when prices and risks are clear up front and not buried in pages and pages of incomprehensible fine print. But, I also believe in American families. When they have better information they will make good decisions and those good decisions will make families stronger and ultimately will make the entire economy stronger.</p
Plain and Simple: if you weren’t already aware, the CFPB is looking to combine TIL and RESPA disclosures into one document. Home loan disclosures are being redesigned, again! READ MORE</p
Interesting timing for such a major change isn’t it. A necessary evil, but still interesting timing. These updates are moving forward regardless of the fact that no real clarity has been offered on the future of the housing finance mechanism (GSEs). And even more closely related to the disclosure updates themselves, the industry is attempting to reform its entire compensation model right now. How can we expect lenders to interpret and implement new originator compensation models without knowing how the new consumer disclosure package will look? How can we expect lenders to keep the mortgage market competitive if we don’t have a clear indication of how loans will be securitized. I can go on and on here…HOW ABOUT THE RISK RETENTION REGS? WHAT IS CONSIDERED A QUALIFIED LOAN?</p
I don’t have a problem with the abundance of reforms that have been outlined for the mortgage industry, but maybe we should approach one major reform at a time to ensure we get the job done right. Compliance folks can only be spread out so far before their oversight wears thin. </p
The final compensation rules are effective April 1, 2011 but the CFPB won’t be completely set up until July 2011. Congress pitched L.O. pay reform under the pretext of consumer protection, but rushing to implement these structural changes without a complete understanding of new disclosures leaves the door wide open to hurt the consumer in the long run. Maybe we’re putting the cart before the horse here? Seems like we need to solve one issue at a time, starting from the top, GSE REFORM.</p
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