The Consumer Financial Protection Agency and Mortgage Borrowers

Posted by  on Apr 15, 2010

The Consumer Financial Protection Agency is a creation of HR 4173, the Wall Street Reform and Consumer Protection Act of 2009. This act was was passed by the House of Representatives in December of 2009. The bill is now before the Senate and the final version has not yet been hammered out. If created, the CFPA takes over regulating consumer financial products and services. This would replace the system we have now, which involves multiple agencies regulating the same companies and products in different ways. The premise is that one agency would be more efficient and effective.

In addition, many agencies like the Federal Reserve have been charged with protecting the integrity of financial markets, which can conflict with the interest of consumers. A separate agency that only looks after consumers relieves others of that burden.

Financial Institution Regulation Needs Improvement

Harvard Law Professor Elizabeth Warren, a designer of the CFPA, claims that today's system allows financial institutions to choose the least restrictive overseers. Some have even managed to dodge regulation altogether. A single agency should remedy that.

An audit report from the Office of the Inspector General for the Department of the Treasury concluded that Office of Thrift Supervision officials were not just aware of misleading financial reporting at some institutions, but actually directed some of them to engage in deceptive accounting practices that made them appear financially better off than they were.

Would Better Regulation Have Headed Off the Real Estate Bubble?

If there been a CFPA last decade, could it have stopped the housing bubble that put millions of homeowners out of their homes? No one knows. But its creation may make home buying and mortgage borrowing safer in the future.

Consumers should be less likely to find mortgages with no down payment, no required income or asset documentation, "funny" appraisals, and weird payment plans. Wall Street investment bankers won't be allowed to sell weird loans as grade-A investments.

The Future of Mortgages: Open Eyes at CFPA

While no categories of home loans are killed off in the legislation creating the agency, the CFPA's mission means it will likely limit or closely scrutinize mortgage products that involve layering of risk--artificially low teaser rates, limited or no required documentation, optional payments, and negative amortization.

The agency would work to eliminate discrimination in mortgage pricing, underwriting, and marketing, taking over the Equal Credit Opportunity Act and enforcing fair lending laws.

Policing Mortgage Lenders and Real Estate Agents

CFPA would find and eliminate under-the-table payoffs for business referrals and make mortgage disclosures fair, honest, and understandable. The Home Valuation Code of Conduct (HVCC), which many feel has been costly to consumers and damaging to the housing industry, would be killed off in favor of the CFPA exercising general oversight on residential real estate appraisers and creating standards to guarantee appraiser independence from real estate agents, lenders, and sellers.

The new agency would have to power to investigate, prosecute, and penalize those who abuse consumers' trust. Getting accurate mortgage quotes and the best mortgage rates on your next loan could be easier.


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