The Fed Jumps In (with a solution...)
Riaz K Tayob
2009 07:33 AM
The Fed Jumps In
The Federal Reserve has just proposed new consumer protections for home
mortgages and home equity loans. Perhaps the timing has something to do
with the Fed's objection to the creation of a new Consumer Financial
Protection Agency (CFPA).
The Fed's proposed regulations are generally about disclosures. It
believes that by giving consumers simple and clear information on the
various pluses and minuses of various mortgage products, the consumer
can then make intelligent decisions. The CFPA, to be contrasted, would
get much more granular -- devising a plain vanilla mortgage product and
encouraging its use by all. If lenders and consumers sought to do
something different -- i.e., not plain vanilla -- there would be CFPA
hurdles to be leapt over.
In short, the Fed's proposals are much less paternalistic than what CFPA
has contemplated.
As an attorney who has closed several thousand residential mortgage
transactions, I worry about disclosures having the desired effect. As a
practical matter, they are often ignored given that most home buyers
(and borrowers) are just in a hurry to get the mortgage they need/want
and therefore give short shrift to the paperwork. So, I worry that
improved disclosures will do they job for which they are intended.
But I also worry about the government stepping in and creating a whole
new slew of paperwork -- vanilla lending products with waivers (for
non-vanilla). Although the intent is a good one, the execution and
reality often causes confusion, delay and cost, the best example of
which is the existing HUD form which all parties must sign at closing.
I feel that our energies (and money) should be directed at making U.S.
consumers more financially savvy -- so that all these protections not be
necessary. Understanding the principles of mortgage borrowing is not
rocket science. People can get it if they want to. We could create, for
example, a 10-point checklist that any mortgage borrower can access --
which gives the relevant questions to ask a lender when contemplating a
mortgage. We could provide a 30-minute video available for free on line
to any consumer who wants to understand mortgages. Basic, simple stuff
that will cost the government nothing and will be there for consumers
who want advice. Should we as a country be creating a whole new slew of
regulations and documents and protocols and procedures to protect people
from themselves? I propose instead that we create clear and
understandable educating resources that are available to all who are
willing to invest say one hour in learning what kind of mortgage product
works best for them.
Jim Randel is the author of The Skinny on the Housing Crisis which last
month was awarded the First Prize in a book competition sponsored by an
organization of 600 journalists who following real estate and finance.
Jim Randel: The Fed Jumps In (25 July 2009)
http://www.huffingtonpost.com/james-randel/the-fed-jumps-in_b_244805.html