The Truth About The New Disclosures

By JOHN WEISTART MCT FORUM – McClatchy-Tribune Information Services
The housing and mortgage crisis is far from settled. The devastating personal and financial impacts on consumers will be with us for a very long time.

The total loss of asset value among U.S. consumers is about $7 trillion. The median net worth of a 50-year old couple in the United States has dropped from $167,000 in 2004 to $118,000 in 2010, mostly due to the decline in home values.

In addition, we face many years of lost future opportunities. Because so much family income is now devoted to feeding underwater mortgages and mortgage default debt, millions of people will receive less education, less support and fewer opportunities to move to better jobs in new locations.

So any discussion of reforms that will correct the mortgage problems of the past should be treated as a serious matter.

For reasons that are far from clear, that has not been the initial response to a carefully crafted proposal to change the way prospective mortgage terms are presented to consumers. The proposal from the Consumer Financial Protection Bureau was greeted with a hearty round of catcalls: “Yet another government agency running amuck” “New Mortgage Disclosures are a Bust” “EPIC FAIL!” Everyone is entitled to his or her opinion, perhaps.

But a very disturbing feature of these commentaries is the huge amount of misinformation and political innuendo that they introduce into a matter that is of critical importance, both to families living ordinary lives and to the general economy.

For example, one commentator, a real estate finance professor appearing on “The Willis Report” on Fox Business News, boldly asserts: “they deleted (in the proposed disclosures) the single most important piece of information for consumers, which is the APR” (annual percentage rate).

This is simply not true. The APR is on page three of the new disclosure form.

Another example, from a law professor’s op-ed piece in the Wall Street Journal: “The agency rules required to implement the new forms weigh in at an astonishing 1,099 pages.” Again, not true. The actual text of the proposed rule is 209 pages. The majority of that text merely restates existing law and is not new.

And then there is the same Wall Street Journal author who states that the regulations will limit the consumer’s ability to choose a mortgage that runs a few years with a big balloon payment at the end.

Again, 100 percent wrong. The proposed regulations do not place any limitations on access to balloon payment mortgages.

We can do much better than this muddle of inflammatory characterization and disinformation. We should restart the discussion of the regulations, and this time promise temperance and accuracy.

There are many serious issues that need to be discussed with respect to the proposed regulations. For example, the financial bureau staff undertook carefully structured consumer testing of different forms of disclosure language. Those tests showed that the prior forms of disclosure generated widespread confusion among consumers and the potential for huge consumer financial losses. Are we confident that enough testing has been done? It is very difficult to change a new disclosure once it has been approved.

How about extending the testing period to allow for the actual use of different versions of the forms in real world transactions, as some industry sources have proposed? Some types of disclosure may be better than others when the great time pressures of an actual real estate closing are added to the mix.

And shouldn’t we reward creditors who consistently do a superb job of educating consumers about their mortgages? Removing them from the regulatory process for a period of time would allow the bureau to give more attention to the truly bad actors who obfuscate, rather than make clear, what mortgage terms mean.

We have gotten off to a bad start in an important public discussion. But there is still time to turn away from the earlier efforts at incineration and have an honest, neutral examination of these well-presented proposed mortgage disclosure rules.

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