cfpb Archives - Real Estate News and Commentary

April 14, 2017December 13, 2022

Demand better consumer financial protection

In an effort to reform the Consumer Financial Protection Bureau (consumerfinance.gov) to become a better steward of consumer protection, H.R.5983 – Financial CHOICE Act of 2016 was introduced during the last congress. The effort to compel oversight on the now embattled agency, as well as provide for a panel of decision makers (in lieu of a single chairperson), is unfortunately highly politicized. As financial consumers, we should demand a better and fair protection agency serving without political motive.

From the Executive Summary of the The Financial CHOICE Act
Creating Hope and Opportunity for Investors, Consumers and Entrepreneurs:

SECTION THREE: Empower Americans to achieve financial independence by fundamentally reforming the CFPB and protecting investors.
Change the name of the CFPB to the “Consumer Financial Opportunity Commission(CFOC),” and task it with the dual mission of consumer protection and competitive markets, with a cost-benefit analysis of rules performed by an Office of Economic Analysis.
Replace the current single director with a bipartisan, five-member commission which is subject to congressional oversight and appropriations.
Establish an independent, Senate-confirmed Inspector General.
Require the Commission obtain permission before collecting personally identifiable information on consumers.
Repeal authority to ban bank products or services it deems “abusive” and its authority to prohibit arbitration.
Repeal indirect auto lending guidance.

Some have hailed the CFPB because it was created out of good intention. There is no question that the CFPB has done a great job in collecting and publicizing consumer complaints. The announcements of consumer complaints seem to be a public airing of consumer grievances, which sometimes signaled forthcoming action from the agency in a specific financial sector.

However, critics contend that the CFPB rules have made lending more burdensome for both lenders and consumers by increasing bureaucratic red tape. It has also increased the cost of lending to consumers by adding levels of compliance measures that are now embedded within the lending process. Critics have also complained that the CFPB’s enforcement is not fair and unequal in focus.

Critics are becoming increasingly vocal, not only because of the sometimes invasive rule making, but more recently of how offenders are chosen and penalized. Jacob Gaffney’s article for HousingWire (Former CFPB attorney pretty much just confirmed the worst fears of the mortgage industry: housingwire.com; January 3, 2017) earlier this year discussed two genuine concerns about the CFPB:

1) “The CFPB targets lenders for enforcement action based on opaque internal decisioning;” and
2) “Monetary penalties seemed determined by revenue, not equalitarian application of said enforcement action.”

Gaffney quoted Ronald Rubin, a former enforcement attorney at the Consumer Financial Protection Bureau, (from a December 21^st 2016 piece “The Tragic Downfall of the Consumer Financial Protection Bureau” published online nationalreview.com) as confirming these concerns. For example, the Wells Fargo fake consumer account scandal, one of the most egregious consumer scandals post financial crises, was not addressed by the CFPB (until it was too late) because Wells Fargo was allegedly “not a target of the agency at that time.”

Referring to the complaint database, Rubin stated:

“The CFPB’s complaint database contained grievances against almost every financial business. Enforcement targeted the companies with the most revenue…rather than those with the most complaints.” He further stated: “Targets (of the CFPB) were almost certain to write a check… Even the size of the checks didn’t depend on actual wrongdoing — during investigations, Enforcement demanded targets’ financial statements to calculate the maximum fines they could afford to pay.”

The recent PHH Corp v Consumer Financial Protection Bureau case highlighted some of the alleged abuse of power by an agency with no oversight. US Appellate Judge Kavanaugh wrote in his opinion:

“That combination of power that is massive in scope, concentrated in a single person, and unaccountable to the President triggers the important constitutional question at issue in this case…
…This is a case about executive power and individual liberty. The U.S. Government’s executive power to enforce federal law against private citizens – for example, to bring criminal prosecutions and civil enforcement actions – is essential to societal order and progress, but simultaneously a grave threat to individual liberty.”

We’ve followed the career of the CFPB since it was established in the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Shortly after the financial crisis, we eagerly anticipated the new agency to help those who were the target of abusive lending and foreclosure practices. Since its inception, however, controversy has embraced the agency.

By Dan Krell
Copyright© 2017

If you like this post, do not copy; instead please:
link to the article,
like it at facebook
or re-tweet.

Protected by Copyscape Web Plagiarism Detector

Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

December 30, 2015August 14, 2019

Real estate year in review 2015

2015 could have been considered a “damn if you do and damn if you don’t” year for the Fed. The Fed is often criticized (sometimes harshly) for their action and inaction. And as the historic run of near zero interest rates ended this year, many criticized the Fed for waiting too long to raise interest rates, while others said it was still too soon. The full impact of the first Fed rate hike in nine years won’t be known well into the next year.

Another real estate milestone that occurred this year was the implementation of the TRID (TILA-RESPA Integrated Disclosure) rule. Although the Consumer Finance Protection Bureau decided to delay enactment once; the decision to put the rule in effect in October was not only significant, but a historic change to the real estate settlement process. Initially, there was mixed reception; some lenders indicated that they have transitioned smoothly, while others reported having difficulty. Even Congress attempted to provide a grace period for those still transitioning (Homebuyers Assistance Act, H.R. 3192). Like the Fed’s rate increase, the full effect of TRID on consumers and the industry won’t be realized until next year.

Even though the 2015 housing market started slowly, because of record cold weather; the market demonstrated its resiliency with increased sales and continued home price growth throughout the year. Some markets were on fire this year; such as the Seattle WA region, where multiple offers and single digit days on market were the norm and home price indices exceeded the national average. However, most other regions (such as the Washington DC region) experienced average growth. The lack of inventory in some markets was said to add pressure on price growth. Home sale growth is expected to continue in 2016, as housing formation and employment outlooks are brighter. While home prices are still below the 2006 peak, home prices are expected to increase with a market expansion. And as housing affordability decreases, some housing critics are clamoring to predict another housing bubble.

San Francisco CA was one of 2015’s hottest markets. The market was so heated that many described it as “insane.” Madeline Stone reported that San Francisco teardowns sold for well above $1M while resales typically sold for 70% above list price (San Francisco real estate has gotten so crazy that this startup founder was offered stock options for his house; businessinsider.com; March 31, 2015).

And of course, there is the notable sale of a 765sf two-bedroom home that sold for $408,000 earlier this year (17% over list price). The significance of the 100-year-old San Francisco home is that it was described as a “shack” and needed much more than TLC (Daniel Goldstein; San Francisco earthquake shack sells for $408,000; marketwatch.com; October 22, 2015).

And what can be more proof that the real estate market has been recovering (at least for those who can afford it) than the world’s priciest home sale. Patrick Gower, Francois De Beaupuy , and Devon Pendleton reported on December 15th (This $301 Million Paris Chateau Is the World’s Priciest Home; bloomburg.com) about the sale of Chateau Louis XIV for €257Million (approximately $301Million); a private sale to a Middle Eastern buyer. Located in a 56-acre park, the recently built Paris estate is said to have taken three years to build. Amenities include an aquarium, cinema and a wine cellar, and a gold-leaf fountain.

By Dan Krell
Copyright © 2015

If you like this post, do not copy; instead please:
reference the article,
like it at facebook
or re-tweet.

October 15, 2015December 13, 2022

Beyond the benefits – reverse mortgages have risks

You’ve seen the commercials promoting the benefits of the FHA reverse mortgage for seniors. If you’re 62 years of age or older and have equity in your home, it may seem attractive to get a mortgage that converts your home’s equity into cash and eliminates existing mortgage payments. However, the ads don’t tell you the entire story. In fact, the FHA reverse mortgage, also known as the Home Equity Conversion Mortgage (HECM), is probably the most misunderstood mortgage program available today.

To educate borrowers of their obligations and how the program works, HUD requires reverse mortgage applicants to go through counseling. Nonetheless, many are still unsure about their responsibilities, as well as the impact on their spouses and how the loan is repaid. Additionally, the equity conversion to annuity payments along with repayment responsibilities has been highly criticized because of the effect on estates and surviving spouses.

On February 9^th, the CFPB released highlights of collected complaints about reverse mortgages. Many of the complaints stemmed from misunderstanding the mortgage terms and issues with loan servicing. Many of the issues seem to describe confusion about borrower requirements and difficulty in loan repayment.

Current reverse mortgages ads can be very engaging about the benefits, to be sure. However, what the commercials don’t tell you is that you have some very specific obligations as part of the loan terms, and that you can be at risk of default if you fail to meet those obligations. Because of how the reverse mortgage is structured, you retain the responsibility to: pay property taxes and homeowners insurance, pay HOA and condo fees, and maintain the property. The financed home must also be your primary residence.

And of course, they don’t tell you about the “widow foreclosures” either. Widow foreclosures may be one of the least reported on issues facing seniors who have a reverse mortgage. Ken Stein, writing for HousingWire (Is HUD hiding embarrassing data on widow foreclosures?; housingwire.com, October 6, 2015), described the growing problem of surviving spouses who are at risk of losing their homes to foreclosure because they are not the reverse mortgage borrower. Mr. Stein described a FOIA battle between the California Reinvestment Coalition (with which Mr. Stein is affiliated) and HUD, about disclosing the number of current and impending widow foreclosures.

Joseph Otting, President and CEO of OneWest Bank, stated during a February 26^th joint public meeting held by the Federal Reserve and Office of the Comptroller of Currency (about the proposed acquisition and merger of CIT Group and Onewest Bank) that the criticism of their reverse mortgage servicing practices are a “really the criticisms of the regulations” that they are required follow. And that they urge and support a moratorium on foreclosure of non-borrowing spouses of reverse mortgages (federalreserve.gov).

As a result of the recent focus on widow foreclosures, HUD issued new guidelines in January and then again in June to assist non-borrowing surviving spouses who are at risk of losing their homes because of a reverse mortgage. Mr. Stein, in his HousingWire piece, concedes that the new guidelines have potential to help; however, he points out that the new guidelines are optional for lenders.

Additionally, the CFPB issued a Consumer Advisory on June 4^th pointing out details about reverse mortgages that the ads omit. The CFPB (consumerfinance.gov) and HUD (hud.gov) websites provide detailed information and considerations about the FHA reverse mortgage.

Google+
Copyright © Dan Krell

If you like this post, do not copy; you can:
reference the article,
like it at facebook
or re-tweet.

September 10, 2015November 23, 2021

TRID implementation remakes the home buying process

Earlier this year I informed you about the upcoming Consumer Finance Protection Bureau (CPFB) TILA-RESPA Integrated Disclosure (TRID) rule that was to begin in August. The implementation date was moved to October 3^rd for a number of reasons, including feedback from the lender community indicating that they needed more time for compliance.

Fast forward to the present, and we are several weeks away from implementation. Overall, lenders are ready to comply with new disclosures and procedures. Realtor® Associations have also been busy getting members up to speed on expected changes and how to cope with potential issues that may arise. However, many are bracing themselves for the initial implementation to see how transactions will be affected.

Some have offered a different perspective on how the initial implementation may happen. For instance, the CFPB requires lenders to provide new disclosures three days prior to closing; however, some lenders may superimpose a longer waiting period (such as five or seven days) so as to ensure their compliance with the new rule. So any delay would tack on those extra days. Additionally, I have been told by loan officers that the 30 to 45 day mortgage closing process will go by the wayside, and that home sale contracts should allow for at least 60 days to go to closing; as well as allowing for flexibility if glitches arise to ensure compliance with the new rule.

The settlement process will be different. Closing documents will no longer emanate from the title company, but instead will be prepared by the lender and sent to the buyer and seller. Closing will occur at least three days later. Lenders are vetting title companies to ensure compliance with the new rule. As a result, an unintended consequence may be that home buyers will not be able to choose their title attorney like they are used to (as provided by RESPA and state law); and will have to choose from a list of lender “approved” title companies. Hopefully the lenders are not steering buyers to title companies where affiliated business arrangements exist, as that is an entirely another issue that the CFPB is pursuing.

If you’ve bought or sold a home in the past, the current contracts may seem somewhat familiar. However, as of October 3^rd, new contracts and addenda will be in use to address the new rule; making it a new experience for everyone. If you’re planning a sale or purchase after October 3^rd, make sure your agent is familiar with the new contracts and addenda so as to ensure they are managing timelines properly and understand how contingencies are affected.

The lingo will change too. If you’re borrowing money from a lender, you will no longer be a borrower; but instead you’ll be called a “consumer;” and your lender will be referred to as the “creditor.” Your good faith estimate will be a “loan estimate.” The time tested HUD1 with which we are familiar seeing at closing, will no longer be in use; and in its place will be the “closing disclosure” sent to the buyer and seller. You will no longer look forward to your settlement day, but instead you will look forward to the “consummation.”

If you are planning to be in the market, you can familiarize yourself with expected changes to the buying/selling process by visiting CFPB’s “Know Before You Owe” (consumerfinance.gov/knowbeforeyouowe).

If you like this post, do not copy; you can:
reference the article,
like it at facebook
or re-tweet.

May 13, 2015June 3, 2020

New settlement rules may facilitate much needed communication

Signed into law July 21^st, 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act (aka Dodd – Frank) was intended to improve accountability and transparency in the financial system, to protect consumers from abusive financial services practices, and to end “too big to fail.” The Act created the Consumer Financial Protection Bureau, which enforces regulations to protect consumers and implements rules such as the Qualified Residential Mortgage (also mandated by Dodd – Frank).

Five years after enactment, Dodd – Frank seems to be the Act the keeps on giving with the upcoming implantation of Sec 1098; which states that the Consumer Financial Protection Bureau (CFPB) “shall publish a single, integrated disclosure for mortgage loan transactions” in a “readily understandable language” so as to help borrowers understand the financial aspects of their loan clearly and to be nontechnical.

The new disclosure and settlement statement is intended to present important information conspicuously to help consumers decide if the mortgage is affordable and give warning about undesirable loan features. The new forms seek to standardize fee and cost disclosures so as to make shopping for a mortgage easier. One of the more important aspects of the new regulation is that the new Closing Disclosure is to be given to the borrower at least three days prior to settlement. During the three days prior to closing, changes to the Closing Disclosure that increase charges are prohibited (unless allowed by exception).

Firm timelines for closing and mortgage associated matters, have always been a crucial aspect of the home purchase contract. Not adhering to the dates specified in the contract usually has consequences. However, changes to Realtor® contracts are being considered to reflect the three day waiting period. What was once a firm timeline may no longer have the “time is of the essence” feel, as future contract revisions may not hold the buyer in breach of contract if the home does not close by contract settlement date. Carryover issues may also include implications to meeting loan commitment and appraisal contingency timelines.

If you’re buying a home, note that there are a number of situations that could cause your closing date to be rescheduled because of a “reset” to the three day waiting period, including a loan product changes, 1/8% increase in APR, and/or there is an added pre-payment penalty. Additionally, other lender actions may also require you to reschedule closing; such as a lender required repair with reinspection.

Many in the industry are also concerned about routine buyer and agent pre-settlement walkthroughs. Rather than prior to closing, they will have to be scheduled to allow for negotiation on potential issues without resetting the three day waiting period (and cross your fingers that nothing happens to the home the three days prior to closing).

However, CFPB Director Richard Cordray was quoted emphasizing “The timing of the closing date is not going to change based on the final walk-through…” in a National Association of Realtors® (realtor.org) May 12^th press release reporting on speakers at a regulatory issues forum.

The complexity and implications of the new regulations will undoubtedly cause some confusion in the first days of implementation. However, the new rules inadvertently address one of the weak links to the real estate transaction – communication. Many are beginning to recognize the necessity for everyone involved in the transaction to be proactive and communicate with each other to ensure compliance.