President & Managing Director
Lenders Compliance Group
I have always been a consumer advocate. Compliance and
consumer advocacy are cemented together. We simply can’t have one without the
other. However, sometimes a zealous regulator can go too far, even for the best
of reasons.
Remember the Mortgage Rate Tool? It’s still up!
The rates used are derived from Informa Research Services.
The Bureau has this explanation:
“The data is provided by Informa
Research Services, Inc., Calabasas, CA. www.informars.com.
Informa collects the data directly from lenders and every effort is made to
collect the most accurate data possible, but they cannot guarantee the data’s
accuracy.”
Not sure about that last part, where “they cannot guarantee
the data’s accuracy.” But I am certainly sure that accuracy is virtually
guaranteed when it comes to disclosure of the Annual Percentage Rate, given the
statutory redisclosure, curing requirements, and civil monetary penalties for
violations.
Remember back in January, a year after the Consumer
Financial Protection Bureau (Bureau) implemented many of its mortgage rules,
when Director Richard Cordray said that “rash predictions” voiced during the
rulemaking process didn’t happen?
He said that the Bureau had not seen “dramatic changes as
some had feared. I recall seeing some rash predictions, such as that the
price of mortgages would double and the volume of mortgages could be halved.
But by the time these rules went into effect, lenders had already retreated
from the worst sorts of lending that took us into the financial crisis.” (My
emphasis.)
So, preying lenders “took us into the financial crisis?”
Cordray’s speech coincided with release of the Bureau’s
survey that found almost half of consumers do not shop around for a mortgage
when purchasing a home. The survey, which was jointly conducted by the Bureau
and the Federal Housing Finance Agency (FHFA), also found that three out of
four consumers only apply with one lender or broker, and most consumers get
their information from lenders or brokers that have their own stake in the
outcome.
Here are the Director’s words:
“By not shopping around, consumers
often are throwing good money down the drain…”
“At the Consumer Bureau, we are
working to reduce the information gap between lenders, who understand mortgage
pricing inside out, and consumers, to whom the process can often feel like a
mystery. It is time to start changing the culture of how people obtain their
mortgages. We need to change the process from one of ‘getting a mortgage’ to
one of ‘shopping for a mortgage.’ Consumers have much more power than they may
realize. They can use that power to take control of their financial outcomes.”
I’m all for “shopping for a mortgage;’ indeed, the
TILA-RESPA Integration Disclosure (TRID) requirements are designed to ensure,
among other things, that the shopping process is protected – as it should be. The
Bureau said the tool would make it easy to compare different interest rates and
how much they will cost over the life of the loan. Who could argue with that well-meaning
prospect?
But, if you recall, the Mortgage Rate Tool triggered huge
opposition from the mortgage industry. Lots of people spoke up against this
rate tool. Camden Fine, President and CEO of the Independent Community Bankers
Association of America, wanted the tool removed.
Mr. Fine didn’t mince words in a January 14, 2015 letter to
Director Cordray:
“While ICBA and its community bank
members support providing robust information and guidance to all consumers
regarding the mortgage process, we are very concerned that the Bureau’s
‘Unbiased Rate Tool’ does not adequately represent to consumers mortgage rates
and products offered by community banks.”
Furthermore, Fine wrote, “based on the CFPB’s own comments,
the source of the rate data does not even include community banks.”
Importantly, he observed, quite accurately, that the Bureau’s
rate tool “creates the impression that all lenders should offer the same rates
for the same loan, and if a higher rate is offered, as in the case of a
non-conforming portfolio loan, it will be presumed that the lender is either
overcharging the borrower or not providing the best lending option for that
borrower.”
Director Cordray had said that while lenders and brokers
could be valuable resources, it was “worth recognizing that they also have an
important personal stake in selling the mortgage” and “what
is best for them is not always going to be best for the consumer.” (My
emphasis.)
To that remark, Mr. Fine called him out, stating that “this statement
implies that because a bank may profit from making a loan that the banker
doesn’t care about what might be best for the consumer.” Community bank
portfolio loans, which are priced based upon the bank’s cost of funds, term,
collateral, and payment characteristics and sometimes the higher risks
associated with those loans, he said, “justify higher rates” than the rate tool
or secondary market surveys might suggest.
Speaking about the inference embedded in Director Cordray’s remarks,
Mr. Fine charged that “to insinuate that their intentions are less than
honorable is offensive to the fine men and women who have dedicated their lives
to the community banking industry for many generations.” Same could be said for
most residential mortgage loan originators!
John Councilman, President of NAMB – The Association of
Mortgage Professionals, had this to say:
“This tool will do nothing but
confuse consumers in their shopping experience”
“These rates do not account for
closing costs, APR, Loan Level Price Adjustments or other key factors. More
important than rate, is quality of service and closing reputations of others
involved in the transaction. If a private company released this exact product,
the CFPB and state regulatory authorities would have a team sent in to shut the
site down.”
Like his counterpart at the ICBA, Mr. Councilman had this to
say:
“What is perhaps most egregious is
Director Cordray’s statement that cautioned consumers that [mortgage lenders
and brokers] have an ‘important stake in selling the mortgage’ … ‘what is best
for them is not always best for the consumer.’ This statement is nothing but
divisive, naive, or dishonest; or all three.”
Yet, the Mortgage Rate Tool is still up!
