Mortgage Disclosures and Modification Appeals are not Enough Reform

San Francisco    There is no question that the new federal level Consumer Financial Protection Bureau (CFPB) is a good thing and that its initiative to reshape and clarify the disclosure forms for homebuyers is important and necessary work.  Writing such forms in plain and simple English is a needed step and requiring full transparency of costs and fluctuations in interest rates over the term of the loans are all steps forward.  All good!

At the same time, no one anywhere should even remotely be deceived that this is a reform of some kind in the mortgage lending industry or that it will change by more than a minimal degree the possibility of homebuyers being skinned alive and stripped bare as they were in the subprime debacle we continue to wallow in throughout the USA.  As long as brokers and mortgage agents are not regulated, properly licensed, and more than modestly supervised by their employers, including the big banks that own so many of them, and are allowed to have financial incentives that drive the sale of the property, the opportunity for flimflam and total fraud at the point of home closings will be exactly the same.  Potential buyers are so motivated to make the deal and buy their home that they will listen to what they are told, not what they might read, and it is the voice in their ear that turns the lies in front of their eyes every time.

Furthermore, the experience of predatory lending in these and other situations always depends on having people in a situation where they can be exploited and essentially have limited choices.  In Citizen Wealth and elsewhere I have told the story of negotiating and implementing agreements with tax preparers like H&R Block, Jackson-Hewitt, and Liberty, all of whom agreed in giant posters and on their computer screens to clearly divulge the 150 to 250% effective interest rates of their refund loan products.  Why not?  If someone was desperate for the money, they already knew they were going to pay a premium that was immense because they had no choice.  Many potential homeowners in these situations are in exactly the same situation.

An article in the back pages of the San Francisco Chronicle by Hugh Son, a Bloomberg writer, was instructive on this score today.  He was reporting on the “surprise” expressed by  Bank of America that they were getting a weak response from their offer to 60,000 mortgage holders that they were willing to reduce principal on mortgage loan modifications by up to $150,000 as part of the attorneys general settlements.  BofA thought maybe it was “borrower fatigue.”  Consumer advocates believed it was likely also the fact that BofA no longer had any credibility with their mortgage holders since they were the same servicers that had gotten them in the mess and maintained it:  why believe someone who had robbed you earlier?   Many may have also abandoned the property or maybe be underwater more than $150K which would make this offer of little value, pennies late and dollars short.  Previously we have also discussed that in many cases this settlement also gave credit for reductions in amounts and interest that were already achieved or waived fines and larded up penalties that the banks themselves had imposed for late or nonpayment.

Disclosures and big ticket settlements are still not reforms and continue to be ineffective as real solutions for the mortgage crisis for millions of families.  After all of these years, why wouldn’t people give up and believe that banks are criminal enterprises and their governments have abandoned them?

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