- CRS Report, ‘Community Development Financial Institutions (CDFI): Programs and Policy Issues’, by Sean Lowry. (Need Bloomberg BNA Subscription)
- Consumers’ mortgage shopping experience, by CFPB.
- HUD Subsidized More Than 106,000 Noncompliant Households. (Discussing HUD’s large-scale failure in oversight of requirement that persons living in subsidized housing perform eight hours of community service per month, or enroll in job training).
Tag Archives: CFPB
Friday’s Weekly REFin ReCap
Realistic Strategies for Consumer Education
The Consumer Financial Protection Bureau has issued its latest Strategic Plan, Budget, and Performance Plan and Report. I was critical of last year’s strategic plan as it related to financial education. I felt that the CFPB was too optimistic about the efficacy of financial education, given the current state of research on this topic.
I was impressed, however, by the CFPB’s approach in this year’s strategic plan:
The CFPB believes that financial education’s primary goal is to help consumers to take the steps necessary to make choices that will improve their financial well-being and help them reach their own life goals. However, prior to the start of the CFPB’s work, very little empirical research had been conducted in the financial education field regarding what variables measure financial health in terms of real-world outcomes for consumers. By defining these variables through data-driven research, the Bureau will be able to define what knowledge and skills are associated with financial health. This research will inform the Bureau’s ongoing efforts to identify, highlight, and spread effective approaches to financial education. (64)
I am pleased that the CFPB appears to be more skeptical about the efficacy of consumer education in this strategic plan and that is reflected in its performance measure:
FY 2013: Identify variables that are likely to be key drivers of financial health
FY 2014: Develop and test metrics (questions) that accurately measure these variables
FY2015: Develop and implement framework for integration into Consumer Education and Engagement Activities; Complete testing financial health metrics
FY2016: Use metrics to establish a baseline of U.S. consumer financial well-being and begin testing hypotheses of identified success factors in consumer financial decision-making (64-65)
This performance measure does not make assumptions about the efficacy of financial education. By treating the topic like a blank slate, it is more likely that the Bureau will be able to avoid dead ends and blind alleys as it attempts to help people to navigate the world of consumer finance.
This is not to say that the Bureau will necessarily be successful. But it does appear that the Bureau is not falling for some of the wishful thinking that some of those in the financial education field have succumbed to.
Risky Reverse Mortgages
The Consumer Financial Protection Bureau released a report, Snapshot of Reverse Mortgage Complaints: December 2011-December 2014. By way of background,
Reverse mortgages differ from other types of home loans in a few important ways. First, unlike traditional “forward” mortgages, reverse mortgages do not require borrower(s) to make monthly mortgage payments (though they must continue paying property taxes and homeowners’ insurance). Prospective reverse mortgage borrowers are required to undergo mandatory housing counseling before they sign for the loan. The loan proceeds are generally provided to the borrowers as lump-sum payouts, annuity-like monthly payments, or as lines of credit. The interest and fees on the mortgage are added to the loan balance each month. The total loan balance becomes due upon the death of the borrower(s), the sale of the home, or if the borrower(s) permanently move from the home. In addition, a payment deferral period may be available to some non-borrowing spouses following the borrowing spouse’s death. (3, footnotes omitted)
The CFPB concludes that
borrowers and their non-borrowing spouses who obtained reverse mortgages prior to August 4, 2014 may likely encounter difficulties in upcoming years similar to those described in this Snapshot, i.e., non-borrowing spouses seeking to retain ownership of their homes after the borrowing spouse dies. As a result, many of these consumers may need notification of and assistance in averting impending possible displacement should the non-borrowing spouse outlive his or her borrowing spouse.
For millions of older Americans, especially those without sufficient retirement reserves, tapping into accrued home equity could help them achieve economic security in later life. As the likelihood increases that older Americans will use their home equity to supplement their retirement income, it is essential that the terms, conditions and servicing of reverse mortgages be fair and transparent so that consumers can make informed decisions regarding their options. (16)
Reverse mortgages have a number of characteristics that would make them ripe for abuse: borrowers are elderly; borrowers have a hard time refinancing them; borrowers can negatively affect their spouses by entering into to them. Seems like a no brainer for the CFPB to pay close attention to this useful but risky product.
Tuesdays Regulatory & Legislative Round-Up
- Consumer Financial Protection Bureau: Final Rule: Amendments to the 2013 Integrated Mortgage Disclosures Rule under the Real Estate Settlement Procedures Act (Regulation X) and the Truth In Lending Act (Regulation Z) and the 2013 Loan Originator Rule under the Truth in Lending Act (Regulation Z)
- Federal Housing Administration: Guidelines for Notice to Delinquent Borrowers of Availability of Housing Counseling
Mortgage Shopping
The Consumer Financial Protection Bureau has issued a report on Consumers’ Mortgage Shopping Experience: A First Look at Results from the National Survey of Mortgage Borrowers. The CFPB’s key findings include
a. Almost half of consumers who take out a mortgage for home purchase fail to shop prior to application; that is, they seriously consider only a single lender or mortgage broker before choosing where to apply. The tendency to shop is somewhat higher among first-time homebuyers.
b. The primary source of information relied on by mortgage borrowers is their lender or broker, followed by a real estate agent. Fewer consumers obtain information from outside sources, such as websites, financial and housing counselors, or personal acquaintances (such as friends, relatives, or coworkers).
c. Most consumers report being “very familiar” with the types of mortgages, available interest rates, and the process of taking out a mortgage. Those who are unfamiliar with the mortgage process are less likely to shop and more likely to rely on real estate agents or personal acquaintances.
d. A sizeable share of borrowers report that factors not directly related to mortgage cost, including the lender or broker’s reputation and geographic proximity, are very important in their decision making. Borrowers who express such preferences are much less likely to shop. (10)
I had discussed the CFPB’s new mortgage shopping tool previously. It has been getting bad press from the lending industry which has been calling for its demise. Seems to me the industry is overreacting. Given the lack of comparison shopping that borrowers engage in, a tool that provides them with interest rate comparisons (even if it does not yet have an Annual Percentage Rate comparisons) seems to be a good thing. The tool is in beta, so it is likely to give more and more information over time. My bottom line: more info is better than less.
Thursday’s Advocacy & Think Tank Round-Up
- American Bankers Association Urges CFPB to Take Down Mortgage Calculator
- Enterprise Community Partners: Enterprise’s Comprehensive Overview and Budget Chart of Affordable Housing and Community Development Proposals in the FY 2016 President’s Budget
- National Association of Realtors Pushing for Commercial Use of Drones
- National Low Income Housing Coalition: Housing Wage Calculator
- Urban Institute: FHFA’s Federal Home Loan Bank Members Proposal Overshoots the Mark
