CFPB in Action

I just received a press release from the Treasury Department highlighting a convening held today on mortgage disclosure forms. The forum was hosted by Secretary Geitner and Elizabeth Warren, the newly-minted Assistant to the President and Special Advisor to the Treasury Secretary. The release said that “the improvement of disclosures for mortgages and other financial products a top priority for the new Consumer Financial Protection Bureau (CFPB).” Welcome to the table CFPB.

While this may not be on the top of everyone’s agenda, anyone who has ever bought a house knows that you sign your name more times on the day of your house closing than any other day in your life. And nobody reads all the documents. And if they do, they don’t have the capacity to understand them. They are written in legalese. Often the terms are pro forma but it is also an opportunity for mischief. In fact many people get signed up for mortgages that exceed their ability to repay. In the old days, this was a problem for the bank that was offering you the loan. But in recent times there was money to be made, and since the loan was sold off to investors far and wide as soon as the ink dried, the mortgage purveyor had no skin in the game. They made their money at sale and then moved along. As underwriting standards declined, defaults eventually went up and the value of these securities plummeted. It certainly caused havoc on the national and global economy, but there have also been consequences at the household level.

One way to address this in the future is to re-institute a set of checks on the mortgage provider. Another is to offer the consumer some additional tools to evaluate the commitments they make when taking out a mortgage. We welcome the federal government to the table to help sort out this mess and ensure that there are sufficient protections in the future. It is certainly a worthy topic for the new CFPB to tackle--the sooner, the better.