There were a number of questionable lending practices throughout the mortgage industry that contributed to the housing market collapse. Now, one federal regulator is taking measures to change the way business is conducted.
The Consumer Financial Protection Bureau recently announced it plans to take steps to make mortgage lending clear and fair for borrowers, the New York Times reports. While the agency, established under the Dodd-Frank Wall Street and Consumer Protection Act, is tasked with regulating everything from credit cards to personal loans, it feels mortgages are a greater risk for borrowers, who should be informed of what they are getting themselves into.
"We have an overarching goal here which is to restore trust in the consumer financial marketplace," CFPB director Richard Cordray told the newspaper. "I don’t think we are just a regulatory body or just an enforcement body."
The agency plans to create lending regulation that would require banks to provide an outline of the exact financial responsibilities a borrower has once they take on a home loan. In addition, lenders will need to give information on the exact fees and payments due at closing. In the event that a borrower falls on hard times and faces foreclosure, lenders will also need to provide better service and more options to avoid a home repossession.
However, Cordray was adamant that these initiatives were meant to protect consumers, not create red tape for lenders that could hurt their business. Specific regulations are expected later this year, the report said.
Staunch opposition expected
Although these initiatives could help consumers who are planning to purchase homes, the CFPB continues to meet resistance from banks, industry groups and lawmakers. In a recent testimony to Congress, the Mortgage Bankers Association said it supports what the agency stands for, but thinks enacting all of these measures at once could negatively impact both lenders and borrowers by slowing the loan process.
Additionally, once exact changes are announced, experts anticipate some legislators to voice their opposition.
"After six months, the only definitive conclusion one can reach about the CFPB is that it's a rapidly expanding bureaucracy that is increasing costs on small businesses and remains completely unaccountable to the American people," Senator Richard Shelby, ranking member of the Senate Banking Committee, told the Times.
Currently, the State National Bank of Big Spring, Texas, has a lawsuit filed against the CFPB, questioning its constitutionality, as well as other aspects of the Dodd-Frank Act.