Mortgage Choice Act good or bad?

Mortgage Choice Act

Mortgage Choice Act
Choosing a lender (infographic from lender411.com)

Monday’s Reuters “exclusive” report about the Consumer Financial Protection Bureau dropping their investigation on the Equifax data breach caused quite a stir in DC (Exclusive: U.S. consumer protection official puts Equifax probe on ice – sources: reuters.com February 5, 2018).  The exclusive cited unnamed sources.  However, a spokesperson for Transunion (a credit repository) suggested that cybercrime is not within the jurisdiction of the CFPB.

Later that day, Reuters cited Democratic Senators’ concerns and outrage over the alleged investigation pullback (Senators urge Trump administration to resume Equifax probe; reuters.com February 6, 2018).

The next day, Reuters reported that Treasury Secretary Mnuchin desired to meet with CFPB’s Acting Director Mick Mulvaney, based on its initial reports of dropping the Equifax investigation (Treasury’s Mnuchin says he wants answers on Equifax breach; reuters.com February 6, 2018) .  In the same report, Reuters cited the CFPB’s spokesperson saying that the CFPB was working with other government agencies on the Equifax data breach.

The veracity of Reuters’ unnamed sources in the report is not clear.  However, there may be something to the fact that cybersecurity falls under the domain of the FBI and Homeland Security.  Additionally, there are many other agencies investigating the Equifax data breach, as Housing Wire reported on Monday (CFPB reportedly pulling back from Equifax data breach investigation: Reuters reports that bureau is not aggressively pursuing investigation; housingwire.com; February 5, 2018).  The FTC appeared to be the lead agency investigating the matter when the data breach became public news.  Additionally, the House and Senate Financial Committees, as well as all fifty states attorney generals are investigating.

Mortgage Choice Act goes under the radar…

News created drama, such as the Reuters’ CFPB story, allows real consumer issues to fly under the radar.  Consumers should take note that the once dead Mortgage Choice Act has come back to life.  Much like a scene out of Tin Men, the revived legislation is being promoted by the likes of the National Association of Realtors® under the guise of being good for the consumer.

According to the CBO (cbo.gov/publication/53497):

Under current law, a ‘qualified mortgage’ has certain characteristics that make it more affordable…To meet the qualified-mortgage definition, certain costs that are incidental to the loan and that are paid by the borrower…cannot exceed 3 percent of the total loan amount. Lenders offering “high-cost mortgages” (home mortgages with interest rates and fees that exceed certain thresholds) must make certain additional disclosures to borrowers and must comply with restrictions on the terms of such loans.”  The Mortgage Choice Act “…would exclude insurance premiums held in escrow and, under certain circumstances, fees paid to companies affiliated with the creditor from the costs that would be considered in determining whether a loan is a qualified mortgage or a high-cost mortgage.”

The NAR is urging support for this legislation, as well as issuing an open letter to Congress.  The NAR’s rationale is that the Mortgage Choice Act:

“… will enhance competition in the mortgage and title insurance markets, and ensure that consumers will be able to choose the lenders and title providers best suited for their home buying needs.”

This sounds virtuous, but in reality it’s a play to allow broker affiliated lenders and title insurers to charge consumers more without additional disclosures.  NAR says that lenders and title insurers would still be subject to RESPA (which prohibits steering and kickbacks).  But charging consumers excessive fees and affiliated businesses giving kickbacks are not mutually exclusive.  Meaning that a lender charges can be excessive independent of the lender providing a kickback to the broker.  (the CFPB has recently fined brokers and lenders for kickbacks).

Is NAR interested in building consumer trust?

The NAR has for years tried to influence public opinion of Realtors® and the industry.  The NAR Code of Ethics has been used as a focal point to increase positive sentiment towards Realtors®.  However, NAR’s desire to implement a Code of Excellence may have been a beginning shift towards building public trust.

The Code of Excellence, like the Code of Ethics, is a desire to increase competence and proficiency.  But research has demonstrated that showing off accolades and awards doesn’t instill value, nor does it increase sales (Valsesia, Nunes, & Ordanini: What Wins Awards Is Not Always What I Buy: How Creative Control Affects Authenticity and Thus Recognition (But Not Liking). Journal of Consumer Research. Apr2016, Vol. 42 Issue 6, p897-914).

Value, along with quality and price,  has much higher regard than ethics in a consumer’s mind.  This was demonstrated by Carrigan & Attalla’s ground breaking consumer research (The myth of the ethical consumer – do ethics matter in purchase behaviour? The Journal of Consumer Marketing. 2001.. 18(7),560-577.)

If the NAR is truly interested in building consumer trust, the NAR leadership should get on the correct side of this issue and provide value to consumers instead of giving lip service.

Copyright© Dan Krell
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Housing and presidential election

from trulia.com

Another presidential election, and there will most likely be very little discussion and debate about housing policy. During the 2012 presidential election, housing seemed to take a back seat as the real estate market was still emerging from a foreclosure crisis and recession just four years earlier. Fast forward to today and homeownership is hovering near a 30-year low.  Homeownership is out of reach to many due to tightened mortgage qualifying and increasing home prices; while Americans’ incomes are being squeezed by rising rents.

Enter Ron Terwilliger. A successful real estate developer and philanthropist, Terwilliger launched the J. Ronald Terwilliger Foundation for Housing America’s Families in 2014 (jrthousing.org). The organization’s mission is to “…recalibrate federal housing policy to more effectively address our nation’s critical affordable housing challenges and to meet the housing needs of future generations.”

Giving the keynote address at The Affordable Housing Developers Summit in Chicago, Terwilliger described an evolving “silent housing crisis.” He proclaimed that “A legacy of the great recession, the rental affordability crisis is often overlooked by policymakers, ignored by the media, and underestimated, at best, by the general public.” And although affordable housing is a bi-partisan issue, he stated that candidates don’t talk about the issue (housingfinance.com).

New HomesSo it should come as no surprise that the J. Ronald Terwilliger Foundation for Housing America’s Families and the Bipartisan Policy Center hosted a housing summit this past October. Speaking at the summit were a number of presidential candidates, policy makers, current and former Senators, a former HUD Secretary, local officials, and industry leaders and experts. Unfortunately, the presidential candidates that are still in the race, did not participate. The summit was held in New Hampshire, where housing costs for 36% of residents is more than 30% of their gross income; and median rents have increased 50% since 2000 (housingwire.com).

The housing summit seemed to inspire realtor.com chief economist Jonathan Smoke, who shortly afterward penned a statement declaring his candidacy for president as leader of the “Housing Party” (As President, I’ll Make American Housing Great Again—Really; realtor.org; October 21, 2015). Smoke believes that housing should be first on the national agenda stating, “The market won’t solve all of our housing problems on its own. And our government seems incapable of working together to find solutions that can help…” Laying out a detailed platform, Smoke proclaims that a vote for him would “…build our way to a stronger economy and more affordable housing for the middle class—a better America for all of us.” He said that he would work toward getting a home for every family.

But it may be that housing policy is a bit more complicated than just proclaiming “homes for everyone.” In a frank analysis of housing policy, Daniel Hertz laid out what seems to be diametrically opposed positions: policy should keep housing affordable so as not to price people out of the market; and policy should protect house values, because homes are an investment and wealth building vehicle (American Housing Policy’s Two Basic Ideas Pull Cities in Opposite Directions; theatlantic.com; October 14, 2015).

Hertz believes that these seemingly opposite policy positions can be “reconciled” by offering a wide variety of housing types for a broad range of incomes. Additionally, he discussed how local privately developed affordable housing programs (such as Montgomery County’s Workforce Housing and MPDU programs) is one avenue to a comprehensive housing policy.

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