As the Consumer Finance Protection Bureau enters its second year as the oversight regulator for the mortgage industry, the bulk of media focus is on how difficult it is to get a loan now, and on reporting enforcement actions for business practices that result in large fines.
These articles do little to build trust with a public that is still trying to decide whether homeownership is worth it anymore. In a room full of friends and family, inevitably I meet someone who talks about an experience they had either first hand, or through someone close to them that involves losing their house, or selling it a large loss.
Then they hear stories about how difficult it is to get a mortgage, and become discouraged and cynical about the entire home buying or home refinancing process. Sadly, they have no idea just how protected they are, because there isn’t any sort of public information campaign to help them see that.
Many of the efforts of the CFPB duplicate the standard consumer protection practices of mortgage lenders today. The following are condensed versions of what consumer protective measures are already in place on every single mortgage loan originated:
- When an application is taken, the borrowers have to be properly identified to guard against identity theft.
- The credit report will be reviewed extensively to ensure there aren’t any irregularities in prior addresses, and name variations that might be a red flag for fraud, or inquiries that might mean new credit is being applied for that could affect loan affordability.
- Income is reviewed at the beginning the middle and the end of a transaction to verify the income is stable, there aren’t any sudden changes that could put the customer in a bad financial situation with the new loan.
- The liabilities on the credit report are reconciled against the income to make sure the total debt plus the new mortgage payment doesn’t exceed levels that historically have been shown to create a higher risk of hardship for borrowers.
- Assets are reviewed for large undocumented deposits to make sure the borrowers are not under the duress or influence of another party with their refinance or purchase.
- Prior ownership of every property is analyzed to make sure there haven’t been a lot of resales to private parties in a short period of time for rising prices to protect against price appreciation fraud.
- The rate disclosure process keeps consumers constantly informed of any changes to their loan costs or terms.
- Mortgage sales professionals can’t charge higher rates to make more money. Their income is limited by pre-set compensation plans that don’t vary based on the terms of the loan.
When the media reports indicate that mortgage lending is more difficult for borrowers, they aren’t really using terminology that reflects what is actually happening: lending is more protective of consumers to guard against them taking on loans they can’t afford, on houses that are priced too high.
The only way to counter this impression is to educate customers, one by one, about the reasons for all of these extra measures. And to make it abundantly clear that the mortgage industry is already protecting them in more ways than they can possibly imagine.