Mortgages Started This Mess. Can the CFPB Fix Them?
Many consumer advocates have high hopes for the Consumer Financial Protection Bureau, partly because the new agency has authority over such a sweeping breadth of financial products. "The NAACP is particularly pleased to note that the CFPB will be looking at almost every aspect of financial services, including mortgage lending, credit cards, overdraft fees and payday loans," says Hillary Shelton, lead lobbyist for the NAACP.
There's a reason Shelton mentioned mortgages first – it's the first industry the new bureau has targeted for change. If you've ever bought a house, you know that you had to sign reams of disclosure documents. You also know that those documents didn't "disclose" much of anything, since it would take a attorney expert in residential law to decipher most of them.
"The real scandal of the American mortgage system is that these so-called disclosures to homeowners are so voluminous and complex that people don't know what they're signing," says Alex Pollock, former CEO of the Federal Home Loan Bank of Chicago and now a resident fellow at the American Enterprise Institute, a conservative think tank. "We ought to be able to get it all onto one page and say it in a clear straightforward way."
This could be the first way that the new bureau affects the lives of real consumers. The agency has released different versions of simplified mortgage disclosure forms, and it plans to have a new standard set by July 2012. The new forms should be just a page or two long. "That's something that would be felt by consumers that's really good," Pollock says.
[Article: The Ultimate Guide to Underwater Mortgages] Credit Cards, Simplified
The bureau plans to do something similar with credit cards. Currently, consumers must wade through countless lines of fine print to figure out what their credit card agreements actually mean. Consumer advocates believe the CFPB can change that.
"I think one of the first things consumers will see is a real cop on the beat with regard to credit cards," says Pamela Banks, senior policy council for finance issues at Consumers Union. "It's about making an informed decision based on information you can read and understand, and being able to make an apples-to-apples comparison of financial products."
While it hasn't announced exactly what it wants to do yet, the bureau has signaled that one of its first projects will be to make credit card disclosure forms easier to read.
"The Bureau's next challenge will be to further clarify price and risk and make it easier for consumers to make direct product comparisons," the agency wrote in a recent progress report to Congress.
Fixing the Servicer Slowdown
Whether you believe that it was excessive risk-taking by banks or excessive meddling by the federal government, it's clear that something went horribly wrong with the national housing market that caused the U.S. economy to crash and burn. The Consumer Financial Protection Bureau has broad authority to oversee mortgage loans, both those written by major banks as well as the largest non-bank lenders.
And there are a lot of problems still to correct, consumer advocates say. Mortgage servicers often pursue foreclosure and loan modification at the same time, which can lead to people losing their homes unnecessarily, according to research by the Center for Responsible Lending. Servicers often lose paperwork, charge abusive fees, and foreclose even when investors are willing to negotiate, the center found.