Vail Daily column: Failures of the Consumer Finance Protection Bureau
One of the early stated goals of the Dodd Frank Act was to create an all powerful, all knowing quasi government agency to protect consumers from the evil clutches of big banks. They called it by a very innocuous (and civic-minded sounding) name of the “Consumer Finance Protection Bureau” (aka the CFPB).
While that sounds like a group that would lead the charge against widows and orphans being overcharged (and they might do that) the reality is the old adage that those who do something well do it, and those who have not a clue what they speak of regulate it.
What Congress forgot to do was to create an agency that was accountable to Congress (or the President, the CIA or the Pentagon for that matter), or to protect consumers from the evil clutches of those who regulate and know not a thing about what they are regulating.
The efforts of the CFPB to ensure consumers are protected against the evils of mortgage lenders are becoming beyond the bizarre. While there is no doubt these regulators have good intentions, one wonders if any of them have ever achieved enough career success to qualify for a mortgage loan.
As to accountability, the CFPB is a unit of the Federal Reserve Bank. The Federal Reserve Bank is a very powerful institution that gets all the cash it needs from the U.S. Treasury, but is completely unaccountable to anyone, other than its member banks (think Chase, Wells Fargo and Bank of America as a few of its masters. The Chairman of the Fed is a nominee of the President and appointed by Congress, but that is where the oversight stops. The Fed can pretty much do as it pleases and Congress can do little to stop it.
Failure of the surveyed mortgage site
Take for instance the recent effort of the CFPB to put up a website that surveyed mortgage rates by state so the consumer could check to see if they were getting a fair deal or not. First, the site was a complete surprise to the mortgage industry. No industry group was invited to make suggestions on how such a site might work or what format would best serve the consumer to make it easy to understand. Secondly, a company was hired to survey mortgage rates from banks state by state to post as the “going rate” each week (mortgaged brokers, who originate most of the mortgage loans were not surveyed, and they usually have lower rates). Thirdly, the CFPB chose to ignore requirements it imposes on mortgage lenders to fully disclose such tiresome fats as the estimated closing costs for a given mortgage rates, or factors required to qualify such as credit scores or loan to value, or occupancy and property type or even the APR.
If I advertised an interest rate with no such caveats, I would absolutely be breaking innumerable laws and several Federal agencies would be after my last dime. But it is apparently quite okay for the CFPB to tell consumers they surely should be qualified for a particular rate with none of the particulars mentioned. And the fact the closing costs vary by thousands of dollars was deemed too troublesome for consumers to grasp. But that was last month’s news.
The big news this month from the CFPB is the upcoming requirement that mortgage lenders disclose within three days of quoting a rate the full closing costs of the loan. In addition, the consumer must receive a disclosure three business days (which under the guidelines for insuring the consumer has received it really means at least seven calendar days) prior to closing.
While that might sound reasonable, here is the reality. Suppose you call me on Friday at 5 p.m. and ask what it might cost to refinance your house. I give you a verbal rate and closing costs based on my pricing then. I have to send you a written disclosure by 5 p.m. on Tuesday. If you call back on Monday and the rates have changed, I still have to send you a disclosure from what we spoke of on Friday, and another disclosure on what we spoke of on Monday (by the following Friday). If we agree on Tuesday to lock the loan and the pricing has changed by one cent since Monday, I still have to send you a disclosure by Friday of that week which will be one cent difference. You have to open the emails and enter the last four of your social security to trigger a bona fide record that you got the disclosure. If you decide you no longer want to pursue the refinance and don’t open the email I have to then mail you the disclosures regardless.
The three-day problem
But wait, it gets better. Suppose we agree on that Friday and lock the rate and proceed with the loan application. You need the money from a cash-out refinance to pay the fee to an adoption agency so you can adopt a child you’ve been waiting for many years and your heart is filled with hope. I send you the disclosure and we move forward. Three days before closing, mortgage rates plummet by half a point, and I am able to renegotiate a better rate for you, saving you tens of thousands of dollars over the course of the loan, enough to set up a nice college fund for your new child.
But to get you the new lower rate, I have to re-disclose your new loan terms, and even if I hand you the disclosure in person we have to wait a week. And the adoption agency says pay up or the kid is going to the next couple waiting on the list. You say you need your money and you want that adoption, but it sure would be nice to have the lower rate.
The CFPB has allowed that there might be circumstances where a consumer can waive a three-day waiting period, but most likely your scenario would not be allowed. When pressed for what the agency defines as a suitable emergency to waive an additional wait, the CFPB said that if the consumer needed the money for a life saving organ transplant that MIGHT be an acceptable excuse. In the above case, the consumer would have to choose between passing on the adoption or taking a lower rate, it is unlikely they could have both because the CFPR is here to ensure they are saved from the evils of taking a lower interest rate without having time to think about it.
Notably, if you were buying a home when asked if the waiting period might cause a homebuyer to lose his earnest money and get a lower rate, the CFPB adamantly stated that such a scenario would not be grounds for waiving a waiting period. Clearly the CFPB does not think consumers should benefit from a lower rate if it was suddenly available and that potentially losing tens of thousands of dollars in earnest money should be a major concern to a homebuyer.
I could cite several other examples of how the CFPB is out to cause havoc in consumers lives, but those will have to wait for future columns.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at http://www.mtnmortgageguy.com.