Are Consumers Really Confused?

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(TheNicheReport) -- How many times have we heard that news rules and regulations were being imposed because consumers were confused? This worn-out, consumer-group talking point has caused more harm to consumers than all the supposed unscrupulous loan originators combined. Let’s look at some recent history. In 2009, the secret society of regulators, also known as the Federal Reserve Board, proposed a rule to eliminate “consumer confusion and steering” in the home loan process. They claimed their rule was justified, based on consumer testing and anecdotal evidence from consumer groups. As a result, the “LO Comp Rule” was implemented, after a failed legal action by industry and over the objection of the SBA office of Advocacy. There’s an old saying in Washington, “Perception is reality.” This is another way of saying, “If you tell a lie long enough, you’ll start to believe it yourself.” In short, the FRB’s “studies” were ridiculously flawed, and allowing their use is tantamount to deceptive practices by the FRB. One study was actually a survey conducted by the AARP. Just over 1,000 homeowners 65 years of age or older were phoned and asked questions about their home financing. At no time did the AARP ever examine a single loan file from any of the 1,008 participants. If that’s not bad enough, AARP couldn’t reach a conclusion, and called the survey incomplete. Even more deceptive was the FRB’s justification for excluding numerous independent studies that clearly showed the rule was unnecessary. One of those studies was completed by a former Georgetown University professor, who is now employed by the FRB. As far as the anecdotal evidence concocted by consumer groups, you would think the FRB would require real evidence, instead of “story time.” The latest attempt to eliminate “consumer confusion and steering” in the loan origination process was released by the CFPB on May 9, 2012.  I thought the LO Comp Rule and the GFE 2010 took care of that? How could consumers still be confused after all this? In the interest of full disclosure, the CFPB appears to have attempted to address some of the concerns in our industry. However, the rule itself, as well as section 1403 of the Dodd-Frank Act, actually creates consumer confusion instead of eliminating it. On page one of the May 9th outline, the very first paragraph reads: “Compensation practices for mortgage loan originators (MLOs) such as loan officers and mortgage brokers can create incentives and confusion that lead to consumer harm.” If you’re ready to scream, you’re not alone. They keep using the same old, unjustified, worn-out talking points from 15 years ago. Remember, what I said above? If you tell a lie long enough, you start to believe it. If this is really about consumer protection, then why aren’t ALL mortgage loan originators LICENSED? Why aren’t banks following the same rules and regulations as brokers? Since 1992, brokers were required to disclose yield spread premiums (RIP YSP), which are now prohibited under LO Comp and Dodd-Frank. Regulators claim “dual compensation” is unfair and deceptive, UNLESS you’re a bank who doesn’t disclose it. Let’s make this clearer for all the confused consumers. Brokers, who always disclosed this form of compensation, can no longer receive it. However, the banks who NEVER disclosed it can continue to receive it, because you don’t know about it. In my opinion, brokers are victims of their own disclosure. The CFPB continues to talk about a level playing field and competition. I’m all for it. They should start with eliminating many of the harmful, confusing and unjustified rules they inherited. The first rule that needs to go is “Appraiser Independence,” formerly known as HVCC. This is one of the most harmful, economically damaging rules I’ve ever seen. It was designed to get Cuomo elected Governor and make the banks a lot of money…PERIOD! Next up should be originator compensation. The current rule(s) are clearly excessive. Instead of regulation by “trial and error,” perhaps we should adopt time-tested regulations used by some of the states. I’m still hopeful the CFPB will correct the mistakes made by past regulators. The new GFE/TIL, which currently is in development, should be given a chance to work before other regulations are enacted. Moreover, Congress needs to amend certain sections of Dodd-Frank to allow the CFPB more time to get it right. Although I do believe some consumers were genuinely confused by the mortgage process, it probably had something to do with the mountain of disclosures mandated by Washington. Other consumers were conveniently confused. After 31 years in the mortgage financing industry, I believe we should give consumers credit for having intelligence and regulate accordingly. Lastly, with every new onerous rule and regulation imposed on mortgage brokers, originators and appraisers, we continue to warn Congress of our extinction. Although this is a real concern and has been proven true for many, I believe we need to take a different approach. All too often, members of Congress turn a deaf ear to our situation. I suggest we make this about their jobs, not ours. The House of Representatives is up for election every two years. Many of these localized races are won or lost on less than a 1,000 votes. As Main Street, small business housing professionals, we hold significant power that could decide an election. NAIHP is going to ask all 435 Members of the House and 100 Senators to sign a pledge to support an amendment that allows LICENSED brokers and originators to order residential appraisals from LICENSED appraisers.  In addition, the pledge will include our amendment to the LO Comp Rule and similar language in Dodd-Frank, which will limit the fee restrictions to high-cost mortgages. Prime and government loans were never the problem. If a legislator fails to sign the pledge by the due date, local housing professionals should ask their opponents to support us. Remember, many elections are decided by less than 1,000 votes. If every broker, originator, appraiser, real estate agent, title agent, their staff and all their families voted in support of those who support us, we could shape our own future. The banks may have the money to buy influence, but we are the organized votes. [caption id="attachment_4802" align="alignleft" width="150"]Marc Savitt of NAIHP, National Association of Independent Housing Professionals Marc Savitt of NAIHP[/caption] Marc Savitt is the President of the National Association of Independent Housing Professionals. Previously, he served as the 2008-2009 President of the National Association of Mortgage Brokers. He also held the positions of NAMB’s President-elect, Vice President, Director, Chairman and Founder of the Consumer Protection Committee, and was awarded NAMB’s highest honor, Broker of the Year.
COMMENTS
  • Time4change on 6/20/2012 3:43:02 PM

    Good Article, Marc and you are the lone voice calling for sensibility to return to our industry. A great idea, to get pledges from our reps in Washington. It would be great to know who is supporting us there. The absurdity of the regulations is, well, absurd!

    "Regulators claim “dual compensation” is unfair and deceptive, UNLESS you’re a bank who doesn’t disclose it." . . . This is what is confusing and unfair to consumers. Brokers show consumers everything but our underwear and for that we get more unfair regulations.

  • G. Steven Bray on 6/20/2012 10:53:46 PM

    Great article, Marc. Please keep us posted.