- Enterprise Community Partners’ latest blog post in the Spotlight on HOME Investment Partnership series highlights the experience of 22 year old Lani, a single mother of two boy’s, who was able to transition from homelessness to stability with the help of Project Independence, a program administered by Adobe Services in Alameda California, partially funded by HOME. Enterprise is highlighting the effectiveness of the program because deep budget cuts threaten to reverse the success of HOME.
- The Mortgage Bankers Association (MBA) released a letter sent to the Consumer Financial Protection Bureau (CFPB) expressing concerns that the recently implemented Know Before You Owe/Truth in Lending Act/Real Estate Settlement Procedures Acts (TILA/RESPA) regulations are causing widespread market disruptions in the mortgage industry, and that lenders are worried about mistakes and potential liability – causing a decline in loan approval rates and ultimately liquidity. The CFPB’s Director, Corday, issued a letter in response, acknowledging that the new rules will require extensive operational adjustment and stating: “examiners will be squarely focused on whether companies have made good faith efforts to come into compliance” and that initial examinations will be “corrective and diagnostic, rather than punitive.”
- The National Association of Realtors (NAR)’s Pending Home Sales Index (a forward looking index) is down slightly for November, the fourth straight monthly decline. Year over year the metric is up, for the 15th straight month. According to NAR the decline is attributable to tight inventory and rising home prices.
- NAR’s RealtorMag predicts the top cities for first time homebuyers in 2016, among the contenders are Orlando, Florida; DeMoines, Iowa; and Banton Rouge, Louisiana.
Tag Archives: Know Before You Owe
Thursday’s Advocacy & Think Tank Round-Up
- The National Association of Realtors (NAR)’s Existing Home Sales (EHS) (completed transactions). EHS fell 10.5% from October and 3.8% from last November. NAR believes this precipitous decline is not due to any decrease in demand but, rather, tight inventory and the Industry’s having to adjust to new “Know Before You Owe” mortgage disclosure rules.
- Seeking Alpha blog’s about the evolving receivership of Fannie Mae and Freddie Mac.
Tuesday’s Regulatory & Legislative Round-Up
- The Consumer Financial Protection Bureau’s (CFPB) new Know Before you Owe mortgage disclosure rule went into effect this week. The new rule was implemented as a reform under Dodd-Frank. Borrowers now have to be allowed three days to consider a mortgage loan, under certain circumstances, and Lenders are required to make a number of disclosures via forms mandated under the Truth in Lending Act. The CFPB has released this video to explain the new rule.
- The U.S. Department of Housing and Urban Development (HUD) continues its recent flurry of grant making activity by awarding $138 Million to over 100 groups to fight housing discrimination. The grants were made under the auspices of the Fair Housing Initiatives Program (FHIP). The awardees will use the funds to support education, outreach, investigations and capacity building.
Tuesday’s Regulatory & Legislative Round-Up
- The Consumer Financial Protection Bureau has launched an Online Guide for Real Estate Professionals to understand their obligations under the new “Know Before You Owe” mortgage disclosure rules, which become effective October 3, 2015. The Know Before You Owe mortgage initiative is designed to empower consumers with the information they need to make informed mortgage choices. It includes the implementation of the TILA-RESPA (Truth in Lending Act – Real Estate Settlement Procedures Act) Integrated Disclosure rule. The new rule primarily does two things, first it consolidates some of the disclosures that must be made unto fewer forms and second it changes the timing of certain activities in the mortgage lending process.
- Fannie Mae and Freddie Mac have announced an auction of Non-Performing Loans (NPLs) in the amount of 1.2 billion and provided details for bidder pre-qualification and servicer requirements. The reasons for the program are fourfold: 1. reduce illiquid assets, 2. encourage broad investor participation; 3. consider borrower outcomes; 4. a well controlled transparent process.
- The New York City Council has passed three Tenant Buyout Bills which were designed to protect tenants from landlords who want them out of rent stabilized apartments.
- The Bills are: Intro 682 – buyout offered in a threatening manner are an act of harassment. This includes untoward language, odd hour contact, frequent contact, and abusive contact.
- Intro 700 – requirement of a writing to memorialize the buyout offer, this writing must include important facts including the tenant’s right to seek legal representation and the right to refuse.
- Intro 757 – Bars repeated buyout offers by making such behavior a form of harassment when the tenant has indicated she/he is not interested.
The Quest for Consumer Comprehension
Lauren Willis has posted The Consumer Financial Protection Bureau and the Quest for Consumer Comprehension to SSRN. it opens,
Dodd-Frank tasked the Consumer Financial Protection Bureau with ensuring that “consumers … understand the costs, benefits, and risks associated with” financial products. Despite this ambitious mandate, and despite the Bureau’s self-branding as a “21st century agency,” the Bureau’s pursuit of consumer comprehension has thus far focused on the same twentieth century tool that has already proven ineffective at regulating financial products: required disclosures. No matter how well the Bureau’s “Know Before You Owe” disclosures perform in the lab, or even in field trials, firms will run circles around disclosures when the experiments end, confusing consumers and defying consumers’ expectations. Even without any intent to deceive, firms not only will but must leverage consumer confusion to compete with other firms that do so. While firms are not always responsible for their customers’ confusion, firms take advantage of this confusion to sell products.
If the Bureau wants to ensure that consumers understand the financial transactions in which they engage, then to meet the challenge posed by the velocity of today’s marketplace, the Bureau must induce firms themselves to promote consumer comprehension, either by educating consumers or by simplifying products. To generate this change in firm behavior, the Bureau should require firms to regularly demonstrate, through third-party testing of random samples of their customers, that their customers understand key costs, benefits, and risks of the products they have bought. Rather than attempting to perfect the format of price disclosures, for example, the Bureau should require firms to prove that their customers understand the price at the moment when the customers are deciding whether to take the actions that will trigger it, whether those actions be taking out a mortgage, overdrawing a checking account, or calling customer service to inquire about the balance on a prepaid debit card. Where consumers are confused about benefits rather than costs, such as the benefit of signing up for a credit repair service, buying credit life insurance, or paying off a debt that is beyond limitations, firms should be required to show that their customers understand the actual benefits the firm is offering before the consumer commits to the purchase or action. (1, footnotes omitted)
This paper poses an important challenge to the CFPB — can disclosure regimes be replaced with something better? One hopes that the answer is yes, although Willis’ previous work on financial education makes me somewhat pessimistic.
This new paper does offer some reason for optimism though. Willis argues that comprehension rules may induce firms to simplify products, so such rules may have a positive impact even if the CFPB cannot move the dial on consumer comprehension all that much.
Weigh in on Mortgage Closing “Pain Points”
The Consumer Finance Protection Bureau has issued a Request for Information Regarding the Mortgage Closing Process. The CFPB wants
information from the public about mortgage closing. Specifically, the Consumer Financial Protection Bureau (CFPB) seeks information on key consumer “pain points” associated with mortgage closing and how those pain points might be addressed by market innovations and technology.
The CFPB seeks to encourage the development of a more streamlined, efficient, and educational closing process as the mortgage industry increases its usage of technology, electronic signatures, and paperless processes. The next phase of CFPB’s Know Before You Owe initiative aims to identify ways to improve the mortgage closing process for consumers. This project will encourage interventions that increase consumer knowledge, understanding, and confidence at closing.
This notice seeks information from market participants, consumers, and other stakeholders who work closely with consumers. The information will inform the CFPB’s understanding of what consumers find most problematic about the current closing process and inform the CFPB’s vision for an improved closing experience. (79 F.R. 386)
The CFPB is particularly interested in responses to the following questions:
1. What are common problems or issues consumers face at closing? What parts of the closing process do consumers find confusing or overwhelming?Show citation box
2. Are there specific parts of the closing process that borrowers find particularly helpful?
3. What do consumers remember about closing as related to the overall mortgage/home-buying process? What do consumers remember about closing?
4. How long does the closing process usually take? Do borrowers feel that the time at the closing table was an appropriate amount of time? Is it too long? Too short? Just right?
5. How empowered do consumers seem to feel at closing? Did they come to closing with questions? Did they review the forms beforehand? Did they know that they can request their documents in advance? Did they negotiate?
6. What, if anything, have you found helps consumers understand the terms of the loan? (79 F.R. 387)
It is rare that a federal agency requests information and comments from the Average Joe, Joe Sixpack and Joe the Plumber. So this is a chance for educated consumers of mortgages to be heard at the highest levels about the flaws in the home loan closing process. I encourage readers of REFinblog.com to make their voices heard!
