Mortgage Choice Act good or bad?

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: 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; 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; 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;; 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 (

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.

By Dan Krell
Copyright © 2018.

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