Standing outside yelling with cardboard signs hasn’t worked
As a public service I’d like to make some suggestions to the new Consumer Financial Protection Bureau (CFPB). You might not want to hear from boots-on-the-ground people, but since you made us all face the wall at the last hearing, we’d like to be heard. Standing outside yelling with cardboard signs hasn’t worked. We tried to get your attention at the Willard Hotel in the Café du Parc but you were with Barney Frank.
Let’s think about getting borrowers to read loan documents carefully, like Lindsey Lohan reads her Miranda Rights. This may be disappointing to you but people don’t read disclosures or loan documents. They want to go home and watch Wheel of Fortune. I suggest we read all loan documents to them in a loud voice. We’d have them initial each paragraph just like they do before rolling you into surgery where you have a choice of initialing the form or dying. This solves the most common complaint against lenders: “No one told me about that.”
The Bureau should require all lenders to have a blackboard. Borrowers would print their definition of fixed and adjustable rate on the board and be graded. “I‘m sorry Mrs. Schlomovitz, fixed has nothing to do with your dog. Next we’ll take up our new cross-your-heart promissory notes.” Borrowers who score 70 or more qualify for a good faith estimate. Any borrower inquiring about the definition of annual percentage rate would be told: APR is a formula that deploys the nucleatives of cosigns that express the disintermediation of the algebraic function X squared divided by your rate which provides an estimate of your true costs.
Let’s think about loan closing statements too. Borrowers don’t think in terms of credits and debits and the meaning of poc. They like simple: What Do I Pay and What Do I Get? If they want to know any more than that, look it up and tell them. Nobody ever gives up a new house over a disputed charge. Most closing statements are shown to the borrowers at the same time their Mayflower Van Line is backing into the driveway. A two-column statement means we can avoid legal terms, like pro-rata and recording.
We know you’ve already made up your mind about flat fees. We think this is a good idea if you approve of people selling mortgages from the trunk of their car. If flat-fee lending is approved, Wal-Mart will open a new department with a greeter that approved 75,000 no-doc loans at Countrywide. We’re being treated like all loan offices are crime scenes. The yellow tape should be strung around Congress. Loans don’t fall together by gravity. Today putting a mortgage loan together is a complicated process; much like a colonoscopy, preparation is the worst part.
To help with deciding the fee issue I suggest we simply add a line to the Good Faith Estimate: “Lender fees will be adjusted according to number of questions you ask. Save money, nod your head and sign. If you have questions you’ll be referred to an attorney who also charges a flat fee. Attorney fees are not regulated so we suggest you shop around for one that is running a special that week.”
I’d like to call to the board’s attention the recent Supreme Court Decision regarding prohibition of fee splitting found in RESPA, a law that proves no law is ever worthless – it can always be used as a bad example. Section Eight provided enough work for lawyers to build entire legal firms specializing in its interpretations. Finally, somebody decided to do something about it.
The Supremes were asked to read the regulation to clarify whether fees can be split. For 30 years we’ve been told by HUD that any loan officer caught splitting a fee with anyone else would be tied upside down to the air ducts in the basement of the Department of Justice. The Supremes, over a lunch of smoked maple salmon sandwiches on pumpernickel from Peacock Alley nearby (hosted by the FBI), decided that HUD’s wording allowed lenders to split their fees internally. The court is going to have to send a memo directly to HUD so the ruling can be officially denied, and yet another Mortgagee Letter issued telling us that since the Supremes did not defer to their definition, it’s not fair they have to defer to the court’s decision. Don’t start changing your accounting system too soon.
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Gordon Schlicke is a mortgage trainer in Seattle. He can be reached at firstname.lastname@example.org or (206) 972-3091.