Where You Stand (Part 3) – Big Brother

...But for those who want the Cliff's Notes of the CFPA, here is an 8 page White Paper outlining the proposal.
 
With TILA and RESPA out of sync, and each falling under the jurisdiction of different Executive Branch departments, does it make sense to combine both elements under a new consolidated Consumer Financial Protection Agency (CFPA)?  Does America really need a CFPA?   Would the real estate settlement industry become crippled under a CFPA?  Is this just an excuse to get government more entrenched in private industry?  Let’s take a look at that.
 
It would be hard to argue that the collapse of the sub-prime market was not the catalyst of our current economic situation.  There’s plenty of argument about what caused the collapse of the sub-prime market…and again, where you stand depends on where you sit.  Do you see it as a normal market correction or the financial equivalent of 9/11?  Do you believe that government intervention will prolong and/or deepen it?  If you stand on the side of it being a crisis akin to 9/11, then does something like a CFPA make sense, using the Dept of Homeland Security as a model?  I ask to spur your thought; while I don’t have all the answers myself… it is important to ask the questions.
 
If, like me, you sat at the closing tables explaining loans to customers who were sold absolutely ridiculous loan products – you might have a stand in favor of new regulations being put in place.  I can’t tell you how many times I watched the “free-market” in action.  I’ve been avoiding saying it publically for months, but here it comes - there was rampant bait and switch.  And when you bait and switch someone on say, a stereo or used car, that’s one thing. When you bait and switch someone on a home mortgage, that’s quite another thing.  You don’t have much bargaining power when you’re sitting at the closing table, U-Haul in the parking lot, and you’re told “don’t worry about the adjustable rate; it’s what we had to do to get the loan through.  We will refinance you into a fixed rate before your rate adjusts.”  Or it’s pretty tough to walk away from your refinance closing when the refi originator has told you to stop making payments on your current mortgage so you don’t “confuse things.”
 
There were so many times that a borrower would be surprised at closing by an adjustable rate mortgage when they wanted a fixed rate.  There were pre-payment penalties on loans that were not based on the credit scores of the borrower, but rather because pre-payment loan penalties netted originators higher fees.  Usually the borrowers would ask the loan originator (if the loan originator attended the closing) why there was such a change in the loan.  “This isn’t what we talked about,” the borrower would say, and the originator would reply something along the lines of “it was the best we could do.” The originator didn’t say “it was the best we could do for YOU,” because often it wasn’t.  At least they were honest about that.
 
Don’t get me wrong, there were good loan originators and bad.  Good borrowers and bad.  Of course there were people looking to fleece the system on both sides of the fence.  But from where I sat, there were far fewer folks trying to “buy houses they couldn’t afford” than there were folks getting misled into thinking they were getting a good deal, not realizing it was all a house of cards dependent upon a loan product that they eventually wouldn’t be able afford.
 
Recently, my brother said “so, because those people either fleeced the system or weren’t educated enough about loan products and got fleeced, now I have to have a government representative beside me holding my hand at the closing table?”  I had to admit he had a point.  I hated it when a borrower would look at me and ask whether they should sign the loan papers, even though the terms were not what had been originally represented to them.  I couldn’t answer that question for them and told them so.  There were a few times, just a few, when I shut the file and walked out of the closing because there were some deals that just didn’t pass the sniff test, even if I couldn’t find the source of the stench.  But I knew when I walked away that someone would close those deals.  And probably they did.  And sometimes I cursed the borrowers for being so in need of counseling on their financial matters, and I cursed the market for not making it easy for them to weigh a good set of options.  But usually I just did my best to try and help them understand, and then let them decide whether the deal made sense for them to do.  Steve, my brother, said “whatever happened to the individual’s responsibility in all of this?”
 
You should know:
 
    5.  I was raised in the Midwest (at the feet of those who survived the Great Depression, no less) which means I am a HUGE FAN of individualism.
 
    6.  I wish my grandfather were here to mediate and debate this state of affairs with my brother and me.
 
    7. Unfortunately he’s not, nor is there anyone else who is going to make sense of all of this for me, or you.  We gotta do it ourselves.
 
So I replied to my brother with words that I also believe to be true.  I said, “I don’t want a government representative holding your hand in closing and I don’t want so many restrictions on lending that people are deterred from buying a home.  Nor do I want a block full of foreclosures on my street or yours.  I don’t want less police on the streets or states issuing IOUs to employees that I count on like say, correction officers.  I don’t believe in the collective to the detriment of the individual, I believe in the collective, if for no other reason, because I am selfish!”  I think Steve and I ended up agreeing to disagree.  From where he sits, a CFPA is a horrible idea.
 
From where I sit, more importantly from where I sat … well, I’m starting to take a stand.