If you've ever purchased a house or an apartment, you're familiar with the blizzard of papers you must sign at closing. Sign here, sign there; read the fine print if you like, but, remember, the seller hasn't got all day. As your writing hand cramps up, you become dimly aware that the purchase price and the interest on your mortgage aren't the sole costs associated with this transaction. There are also any number of mortgage fees and conditions and rules and contingencies, all of which you're expected to understand even as your heart races and your brow dampens at the thought of signing the biggest check you've ever written in your life. If it isn't the biggest (and if you don't happen to be rich) then your troubles are probably only beginning, as purchasers of subprime mortgages learned the hard way in the housing bubble.
From dual perches in the White House and the Treasury, Elizabeth Warren is overseeing the creation of the Consumer Financial Protection Bureau mandated under the Dodd-Frank financial-regulation law. Warren has long been irritated by the way mortgage companies "disclose" those fees and conditions and rules and contingencies by drowning the buyer in agate type. On Sept. 21, Warren and her boss, Treasury Secretary Tim Geithner, convened a semi-public forum on the problem with mortgage companies and consumer groups. (I say "semi-public" because the only press allowed were National Public Radio, the Washington Post, the wire services, and a handful of photographers. Hmph!) "Fine print obscures the cost of credit and makes it impossible for families to compare products," Warren said at the forum. "Streamlined disclosure can level the playing field and give families better tools to make better choices."
Mortgage lenders' obfuscation arises in part from a ridiculous government turf war created by two conflicting statutes. The Truth in Lending Act, first passed in 1968, made the Federal Reserve Board the guarantor of consumer protections for mortgage holders. The Real Estate Settlement Procedures Act, first passed in 1974, gave the job to the Department of Housing and Urban Development. Rather than resolve the problem, HUD and the Fed spent most of their energies fighting each other over jurisdiction. It didn't help that the laws themselves contained different disclosure requirements. "It's the mortgage industry's Vietnam," one mortgage industry consultant told the American Banker. The Dodd-Frank law sought peace with honor by transferring mortgage consumer-protection authority to the CFPB, of which Warren is now de facto director, and by mandating that two existing forms be melded into one.
But do mortgage companies want peace? Warren has noted in the past that home-buyers are often ignorant of the most basic information about their transaction. A 2007 Federal Trade Commission survey of home-buyers in the Washington, D.C., suburbs found that 87 percent could not identify their total up-front charges. "Most respondents began the interviews with positive views of their experience obtaining a mortgage," the FTC report observed. "But as the interviews progressed, it became clear that many respondents were unaware of, did not understand, or had substantial misunderstandings about important features of their recently obtained loans." As the interviews progressed, "the attitude of many respondents deteriorated." In this limited sense, mortgage bankers fit the definition of the confidence man that the University of Louisville linguist David Maurer gave in his classic 1940 study, The Big Con. "The trusting victim literally thrusts a fat bank roll into his hands," he wrote. "It is a point of pride with him that he does not have to steal." Ideally the victim should never learn that he's been taken.
The deadline for action under Dodd-Frank is July 2012. Warren and Company are committed to producing a consolidated form "well ahead" of that deadline, according to a Treasury Department press release. Beating a timetable that extends nearly two years into the future shouldn't be difficult. Finding a simple way to resolve conflicting statutory requirements, on the one hand, and overcome mortgage bankers' natural resistance to accountability, on the other, will be a lot harder.